NEW DELHI: Whichever party or alliance forms the next government at the Centre, they will have a tough time steering the economy as almost every economic indicator is pointing towards a slowdown. This, according to economists, will unfold further over the next few quarters.
“The economy is going through a cyclical slowdown and it has nothing to do with elections,” D Joshi, chief economist at CRISIL, told TNIE.
The first sign of stress in the economy became evident when the Monthly Economic Report released by the Department of Economic Affairs earlier this month conceded there’s indeed a slowdown.
“India’s economy appears to have slowed down slightly in 2018-19. The proximate factors responsible for this slowdown include declining growth of private consumption, tepid increase in fixed investment, and muted exports,” the report said, adding the implied real GDP growth is lower in Q4FY19 at 6.5 percent while for FY19, the GDP growth rate is seen at 7 per cent.
The numbers are startling. GDP is projected to grow at 6.98 per cent in 2018-19 against 8 per cent growth in 2015-16. Gross value added growth slipped to 6.79 per cent in FY19 from 8.03 per cent in FY15 and the latest IIP numbers hit a 21-month low, projecting a slowdown in industrial activities.
“The slowdown in the industrial sector is deeper than what many had calculated. The negative growth in manufacturing for several months in the last financial year shows slackening of demand domestically besides the impact of global slowdown,” said Professor NR Bhanumurthy of National Institute of Public Finance and Policy.
“There is contraction in capital goods production for three months. This means the impact of the slowdown will be felt in the current financial year as well, because sales of capital goods is an indicator of new factories being set up,” he added.
Slow spending has its bearing on corporate earnings. “Of 384 companies, more than 330 companies exhibited negative growth in mid-line and bottom line. Perhaps, significantly depressed rural prices is disturbing rural income and weak demand is affecting the FMCG sector,” said a research report by SBI Ecowrap.
The last quarter also saw a steep decline in consumption. Consumption has shown serious signs of stress in the past few quarters with passenger car industry growing just 3 per cent in FY19, the lowest in the last five years.
The weakness is likely to continue in the next quarter. “Sectors such as telecom service, pharma, automobiles, and mining are likely to be affected,” said SBI Ecowrap.
Agriculture continues to remain the sore spot of economy and the weak monsoon prediction can further intensify the problem, as accepted by the Department of Economic Affairs report. “Growth in GVA in agriculture has been slowing since Q1 of 2018-19 and may continue to fall in Q4 as well; moderation in food deflation may soften this decline towards the end of the year,” it noted.