India s GDP growth rate witnessed a slowdown. This has raised the prospect of fiscal stimulus and a rate cut.
GDP Growth Rate
- India grew at a much slower-than-expected 5.8 per cent in the last quarter of the financial year 2018-19.
- India s growth rate at 5.8 per cent behind China s 6.4 per cent for the first time in nearly two years.
- It is expected that growth rate would be “relatively slower” even this quarter but would start turning around from the July-September quarter with favourable interest rates and an improvement in liquidity.
- The reduced growth rate was due to the weak consumption demand and tepid private investment
- The Ministry of Statistics and Programme Implementation has cut its growth estimate for the fiscal year 2018-19 to 6.8 per cent, the lowest in five years against the previously projected 7 per cent.
Impact of the Reduced Growth Rate
- The reduced growth rate mounts pressure on the government and the Reserve Bank of India to take measures to boost growth.
- The government would be in a difficult position to announce any fiscal stimulus or increase its spending as it is already facing a tight fiscal situation.
To arrest the declining growth rate trends RBI in its monetary policy could further reduce repo rate by another 25 basis points and the upcoming budget by the new government could take steps to stimulate economic growth.