Bharatiya Janata Party leader Subramanian Swamy on Saturday said that the country may not reach its target of being a $5-trillion economy if "no new economic policy is forthcoming”. Swamy’s comments followed the news of India’s Gross Domestic Product growth falling to 5% in the April-June quarter – the fourth straight quarter of slower growth and the slowest growth in over six years.
"Neither boldness alone or knowledge alone can save the economy from a crash,” Swamy tweeted. "It needs both. Today we have neither.”
On the other hand, while economists were not expecting robust numbers, they were alarmed as India’s growth in Q1 was lower than China’s 6.2% for the same period, which was the country’s lowest in three decades.
It also means the government’s plan to grow India’s economy to $5 trillion over the next five years may not be easy.
According to M Govinda Rao, former member of the Prime Minister’s Economic Advisory Council, the $5-trillion target will remain "a distant dream”.
"We’ve been talking of slowdown in demand for long and today’s figures only underline it. The manufacturing sector has grown just 0.6%, compared to 12.1% in the same period last year. It shows the problem has deepened. People are not buying. The government should now seriously look at structural reforms including in the labour and land markets as a way out of this morass,” he said.
The numbers paint a bleak picture of the economy.
Agriculture grew just 2%, compared with 5.1% in the same quarter last year. Construction sector growth shrank to 5.7% against 9.6%. Even the services sector put up a poor show.
"The slowdown is obviously much deeper and broad-based than previously understood,” said N R Bhanumurthy, professor at National Institute of Public Finance and Policy.
"However, the current policy measures which have been announced by the government and possible improvements in external factors could see a recovery, albeit slowly, in the next couple of quarters,” he added.
While the government has finally acknowledged there is a slowdown in the economy and has started taking corrective measures, economists think the overall growth for the full year would remain subdued, with Prof Rao forecasting 5.5-6% GDP growth for FY20.
The poor growth numbers may also prompt RBI to continue with its policy of cutting interest rates.
"RBI will feel vindicated in its dovish shift this year and will almost certainly add to the 110 bps of policy rate cuts introduced so far,” said Mark Wiliam, Chief Asia Economist with Capital Markets, in a note on the GDP numbers.
"The problem area is the extent of the demand squeeze we are facing. Private consumption growth has fallen to a four-year low of 3.1% in this quarter,” said Biswajit Dhar, Professor of Economics, Jawaharlal Nehru University.
"Measures such as FDI rule changes and more liquidity to the private sector will help, but the government will have to do some amount of pump-priming by spending more money on infrastructure.
The government adopted a slew of measures to control the economic slowdown in the last few weeks. Finance Minister Nirmala Sitharaman on Friday announced that 10 public sector banks would be merged into four entities. The announcement came a week after she unveiled a slew of measures to revive economic growth.
Last week, Sitharaman had announced a set of measures to prop up the economy, less than two months after presenting the Union Budget. The Reserve Bank of India had also announced last week that it would give the Centre Rs 1.76 lakh crore of its dividend and surplus reserves.
In the last few months, core sectors such as automobiles, manufacturing and real estate, witnessed a progressive slowdown in growth due to weakened consumer demand and dearth of investments. Chief Economic Adviser KV Subramanian on Friday attributed the slowdown in the growth of Gross Domestic Product to domestic and global factors. He added that the government was taking steps to improve the situation.