Slowing down: 

Slowing down: 
Context:

India’s GDP growth tumbled to 5.7% in the  first quarter, April to June of this fiscal, , is the slowest in 13 quarters.

Introduction:

Data released by the Ministry of Statistics show that GDP slowed to 5.7% in the quarter ended June 30, from 7.9% in the corresponding period a year ago.

  • The data also showed that the sectors that would have been affected by demonetisation were the ones that took the biggest hit.
  •  India, which had the mantle of world’s fastest growing major economy, has now slipped below China in terms of growth. Our northern neighbor reported a growth rate of 6.9% for the last quarter

Sectors that have performed badly:

Growth in manufacturing slumped to 1.2 per cent in the quarter to June — a five-year low compared to the earlier quarter.

  •  According to India’s chief statistician owed to a high level of inventory de-stocking, while mining contracted by 0.7 per cent.
  •  Agriculture growth too was weak.
  •  The construction sector grew by 2per cent after a negative March growth.

Sectors that have registered strong growth:

   Financial services grew at 6.4% while trade, hotels, transport, and communication grew 11%.

  •    Defence services showed an impressive growth of 9.5%.

Government spending:

  • The government spending is accounted for one-third of GDP growth in this quarter and reflected in the government’s fiscal deficit in the April to July period which is now 92% of the Rs 5.46 lakh crore estimated for FY 18.

Background:

  • The Economic Survey had said that several deflationary impulses were weighing on the economy and that growth was likely to miss the upper band of the GDP forecast of 6.75 per cent to 7.5 per cent for FY 18.

Key points:

 Finance Minister Arun Jaitley emphasizes the need to work more on policy and investment in the next few quarters.

  •  The current slowdown started in mid-2016 with demonetisation   accentuating it, with demand being squeezed.
  • Slowdown also comes at a time of farm distress in large swatches of the country, lower demand and capacity utilization, weaker external demand and when firms are deleveraging- a process which can stretch long and prove extremely painful for the economy.
  •  The gross fixed capital formation or GFCF, a measure of investment, rose 1.6 per cent year-on year .
  • The GFCF has been on the decline over the last few years, sliding to 26.9 per cent of the GDP in FY 17 compared to 29.2 per cent in the earlier fiscal.
Print Friendly, PDF & Email

Free IAS Preparation by Email

Enter your email address to subscribe to the blog followed by several Rankholders and ensure success in IAS.