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India GDP growth slumps to 5% Measures to Achieve Higher Growth

As per the, Central Statistics Office (CSO) has been released India’s economic growth datas for the April-June quarter ( Q ) of financial year 2020 on August 30. Following the same, The economic growth of India slumped for the fifth straight  Q  (April-June) to an over six-year low of 5% in the three months ended June as consumer demand and private investment were slowed amid deteriorating international environment.

Notably, This is the slowest pace since January-March 2013. As per the official report suggested that, The growth stood at 5.8% in January-March of 2019 and 8% of April-June 2018. Having lost the tag of the world s fastest-growing economy earlier this year. However, India s GDP growth was behind China s 6.2% in April-June, its weakest pace in at least 27 years noted.

Meanwhile, Government s Chief Economic Adviser K V Subramanian remarked that,  India s GDP numbers indicate that growth while still high, has shown some slowdown . However, Quite similar occurrence has been also observed previously in the last  Q  of 2013-14. So we should be assured that higher economic growth would start manifesting in some time. Currently, We are sticking to the forecast of achieving 7% growth in Financial Year ( FY ) 2020 (April 2019 to March 2020) .

The Chief Economic Adviser (CEA) also assumed that, The union government of India has been taking all essential steps in  short term  and  medium term  to take care of such situation. Further,  The investment rate actually seems to be picking up. The capacity utilisation is increasing now and is now comfortably above 76% .  What is critical for that 8% growth is investment ?

Examining this,  It has been on account of both  exogenous  and  endogenous  factors. The union government is quite alive to the situation especially global headwinds arising out of deceleration in the developed economic and Sino-American trade conflict which has contributed to the slowdown . In short, Trade war, global slowdown led to GDP slowdown, The CEA asserted.

Governance Reforms: PSB Boards empowered
Strengthening the Board committee system, Major flexibility given to Boards of large PSBs to enhance sitting fees of Non Official Directors (NODs), I.e, For better Board committee functioning, Boards given mandate to reduce/rationalise Board committees, Risk Management Committee given mandate to fix accountability for compliance of Risk Appetite Framework, Longer term to Directors on Management Committee of Board (MCB) to enable them to contribute effectively and MCB loan sanction thresholds enhanced by up to 100%, to enable focussed attention to higher value loan proposals etc is the major governmental reforms to get rid about the same. Hence, Role of PSBs becomes significant.

Enhancing effectiveness of Non-official Directors (NoDs)
For Instance: NODs to perform role analogous to independent director, The boards also given mandate for training of directors, both for induction and for specialised purposes, and given mandate to evaluate NOD performance annually on peer-review basis. With the special light of a Leadership development, Executive Directors’ strength in larger banks raised to 4, for better functional focus and thrust to technology, and Creation of leadership pipeline under BBB’s Leadership Development Programme etc.
Read Also, Budget will facilitate steel industry growth.

Repositioning PSBs for $5 trillion economy and PSBs to drive GDP growth, It contains wide-range of Economic Reforms. Financially stronger PSBs, Technology-driven banking, Scale and synergy - Consolidation and Governance strengthened.. To make span of control manageable in large PSBs, post consolidation, Boards also given flexibilty to introduce CGM level as per business needs. Union Minister of Finance & Corporate Affairs Nirmala Sitharaman s Presentation on amalgamation of National Banks attributed.

Ten public sector banks to be merged into four
Prior to this landmark announcement of GDP figures, the government on Aug 30 announced its second of the three-part stimulus, merging 10 public sector banks (PSB) into four with a view to boost credit to help revive the Indian economy. In this regard, The union government also announced capital infusion totalling over ₹55,000 crore into public sector banks such as PNB (₹16,000 crore), Union Bank of India (₹11,700 crore), Bank of Baroda (₹7000 crore), Indian Bank (₹2500 crore), Indian Overseas Bank (₹3800 crore), Central Bank (₹3300 crore), UCO Bank (₹2100 crore), United Bank (₹1,600 crore) and Punjab and Sind Bank (₹750 crore).

Under the scheme of  amalgamation , Indian Bank will be merged with Allahabad Bank (anchor bank - Indian Bank); PNB, OBC and United Bank to be merged (PNB will be the anchor bank); Union Bank of India, Andhra Bank and Corporation Bank to be merged (anchor bank - Union Bank of India); and Canara Bank and Syndicate Bank to be merged (anchor bank - Canara Bank). Thus, In place of 27 public sector banks in 2017, now there will be 12 public sector banks.

Recently, The first stimulus package was announced that included reduction of taxes, improvement of liquidity in the banking sector (formal and shadow), increased government spending on auto and infrastructure, and accelerated refunds of Goods and Services Tax (GST). Which was followed by liberalisation of foreign investment rules in four sectors -  coal mining ,  contract manufacturingsingle-brand retail  and  digital media . A third and possibly last package, expected in the next few days, may deal with issues facing the realty sector, PTI news agency reported.

After agriculture, real estate-construction is the second-largest employer and also has a huge backward and forward linkages with other sectors. So reviving such sectors would be crucial both from the  investment  as well as  consumption  point of view. While the rating agency believed that there is no quick-fix solution to the downturn which has been in the making for the past few years.

Hence, The recovery will also take its own time, adding the RBI may cut interest rates one more time to boost demand. So far, RBI has cut interest rate by 110 basis points in 2019. The GDP growth slowdown was led by private final consumption expenditure, which grew 3.1% only (18 Q low). Investment demand also remained lackluster and fixed capital formation grew 4.0% (4Q FY 2019:3.6%). Only government expenditure provided support to growth and increased by 8.8% , Research Chief Economist remarked.

Following the reports, The Gross Value Added (GVA) growth in the manufacturing sector tumbled to 0.6% in the first quarter of this fiscal from 12.1% expansion a year ago. Similarly, farm sector GVA growth remained subdued at 2% as compared to 5.1% in the corresponding period of the previous fiscal.  Construction sector  GVA growth too slowed to 5.7% from 9.6% earlier. However, mining sector growth climbed to 2.7% from 0.4% a year ago.

Greatly, The RBI had marginally lowered the GDP growth projection for 2019-20 to 6.9% from 7% projected earlier in the June 2019 policy, to 6.9% - in the range of 5.8-6.6% for first half of 2019-20 and 7.3-7.5% for the second half - with risks somewhat tilted to the downside . While a further slip in GDP growth is likely to lead to demands for rate cut by at least 50 basis points or more in its next policy review in October 2019.

The second half of the year is expected to see some pickup in demand with the festive season and favourable monsoons so far this year could lead to improved rural income. These measures and seasonal factors are likely to revive the growth going forward. Care Ratings is expecting the GDP growth to be around 6.7% - 6.8% for the fiscal year 2019-20, Official analysis read.

Following the New India Union Budget, The villages get roads, the poor get houses, and every household got a toilet, a gas connection and an electricity connection. Fifty crore people got hospital treatment upto Rs.5 lakh per year. And their lives became liveable with at least these basics. To carry this path forward, completion of the rural housing being constructed and delivered to the poor, and the conclusion of the remaining part of the gas connection programme, the Budget 2.0 takes upon itself the task of concentrating, in the next five years, on a ‘tap for every home’.

For this, it is essential to clean up our rivers and have an adequate water management. The last five years had seen a lot of emphasis on infrastructure. However, The First Woman Finance Minister Nirmala sitharaman has rightly given top priority to infrastructure and this priority is self-evident in the fact that the rural roads programme connecting every village with a motorable road is nearing completion. The National Highways are moving at a pace faster than ever before. Adequate amount of allocations have been made in the Budget for this. The Budget 2019-20 On July 6 read.

Despite all of this, The ongoing economic slowdown in the country is both, the  structural  and  cyclical . Parliamentary elections in April-May 2019 had also some impact on our  investment growth, the collapse of private consumption demand from 10.6% in 4Q FY 18 to 3.1% in 1Q FY 2020 is the real cause of concerns behind this.

Thus, The  structural  and  cyclical  issues are plaguing our economy and in order to bring the economy back to a respectable growth path both short-term and long term measures are required. Declining savings especially household saving is a main menace for the Indian economy and is leading to structural growth slowdown. Although, RBI and Government have initiated numerous measures to achieve higher growth situation by many ways as it is well mentioned in above.

Author: Trilok Singh - CEO/CMD at Youth Darpan Media,, and India’s Journal. MA in Political Science, Kirori Mal College, University of Delhi. Studies at Rau s IAS Study Circle and ISOMES.

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