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India GDP growth sinks to 4.5% in September quarter

Dismal data comes as government denies prospect of recession

Demonstrators shout slogans during a protest, organised by a group of students, demanding jobs near Kolkata, India, Sept. 13.   © Reuters

NEW DELHI -- Indian economic growth slid below 5% in the July-September quarter, hitting a fresh low due to sluggish investment and weak consumer demand, while the Modi government asserted there is no risk of recession.

For the second quarter of the ongoing fiscal year ending March 2020, official data released on Friday showed that gross domestic product expanded just 4.5% on the year, further down from the six-year low of 5% recorded in the previous three months. While private consumption grew 5.1%, public and private investment expanded only 1.0%, hitting a nearly five-year low.

The State Bank of India, the country's largest public sector bank, and Japanese brokerage Nomura had predicted July-September growth to be 4.2%, while macroeconomic research company Capital Economics and the Fitch Group's local arm India Ratings and Research estimated it at 4.7%.

The latest numbers have piled pressure on the government of Prime Minister Narendra Modi, which is already scrambling to revive growth, to undertake additional stimulus measures to reverse the slowdown. Modi aims to make India a $5 trillion economy in the next five years, up from the current $2.7 trillion.

The slowdown comes amid continued distress in sectors ranging from automobiles, real estate and non-banking finance, along with a downturn in the global economy.

"This slowdown is not going to go away anytime soon," Sunil Kumar Sinha, principal economist at India Ratings and Research, told the Nikkei Asian Review on Friday, stressing the need to boost demand, including through job creation. "Investment in any case is down," he said, adding "nothing is happening" besides government outlays.

The dismal second-quarter GDP figures are "on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure," according to the SBI, which revised downward the whole fiscal year growth rate to 5% from its earlier 6.1% projection.

But, Capital Economics said, the latest figure should mark the bottom for economic growth. "There are early signs that services activity, consumer spending and credit growth picked up at the start of [the ongoing quarter]."

Economists say the investment-led slowdown has broadened into consumption, driven by financial stress among rural households and weak job creation, while also pointing out that government measures are not necessarily meeting the requirements of low consumer demand.

Amid the continued economic slowdown, many feel the Reserve Bank of India, the country's central bank, may go for another interest rate cut of 25 basis points next week. The RBI has so far this year reduced rates by 1.35 percentage points to 5.15%.

However, the possible rate cut "is unlikely to lead to any immediate material revival, rather it might result in potential financial instability," the SBI cautioned in a recent report.

Meanwhile, the government said though growth may have slowed, there is no fear of recession, which is typically defined as negative growth for two straight quarters.

"If you are looking at the economy with a discerning view, you see that growth may have come down, but it's not a recession yet and it won't be a recession ever," Finance Minister Nirmala Sitharaman said in Parliament on Wednesday, as the opposition flayed the government for the slowdown.

Among recent measures taken by the government to boost growth are recapitalization of banks and a sharp reduction in corporate tax rates. However, economists feel it should have acted much earlier, as the economy has been showing signs of a slowdown for over two years.

Additional reporting by Nupur Shaw.

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