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India's GDP Decline Continues; What Is The Impact Of This On Economy?

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What makes economists so confident of lower Q2 GDP numbers

Union Dwelling Minister Amit Shah has stated that the Indian financial system has moved from the period of coverage paralysis, scams and corruption pre-2014 to an period of daring, clear and decisive decision-making underneath the Prime Minister Narendra Modi-led authorities since 2014.

The gross domestic product data released yesterday showed consumer demand, private investment and exports all struggling, resulting in a year-on-year growth figure that was below the 4.7 percent forecast in a Reuters poll of economists. It's a culmination of several months of downbeat figures, from plunging vehicle sales to shrinking factory output and an export slump.

According to the statistics released by the Indian government on Friday, the decline in growth was seen in nearly every key sector.

The Home Minister said that government is committed to strengthening the industry and the trade and said: "By lowering the corporate tax ranging between 17 to 25 per cent, India has got the distinction of one of the lowest corporate tax levying country".

Hope floats that the government's various stimulus measures will revive a sliding economy in the months to come but the signs are less than encouraging. The Gross Value Added (GVA i.e GDP without taxes) grew 4.3% in July-September 2019 compared to Q1 when the growth was 4.9%.

"Growth has slowed, but not the pace of reform".

This is the fifth straight quarterly decline in the economy's growth rate. The rural economy remains weak and borrowing is hamstrung by debt-laden banks and a crisis-ridden shadow lending sector. "Continuing poor domestic sentiment along with the lack of any demand uptake globally would ensure that any recovery process would only be gradual".

The Reserve Bank of India will meet days after a report showed growth collapsed to 4.5% in the July-September quarter, the first time it's been below 5% since 2013. The RBI has already cut the policy rate five times since February, by 135 basis points to 5.15 per cent, and the pundits expect another one next week.

"The onus is on the government to do the heavy lifting", said Devendra Pant, chief economist of India Ratings and Research, a local unit of Fitch Ratings Ltd.

The government has targeted the fiscal deficit to be at Rs 7.03 lakh crore for 2019-20.

"At this juncture, transmission of the cut in RBI's policy repo rate by the banking sector becomes crucial to boost the credit growth and to bring down the cost of doing business, particularly for the MSMEs", he was quoted as saying in a statement.

Value-added growth in the farm sector was just 2.1% as compared to a growth of 4.9 percent the same time a year ago.

In a scathing attack on Finance Minister Nirmala Sitharaman, senior BJP leader Subramanian Swamy has said, "she doesn't know economics".

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