In the July-September quarter of 2019-20, India’s gross domestic product (GDP) growth dropped to 4.5 per cent, a free fall from the ambitious government call for double-digit growth not so long ago. It now also seems unplausible to turn India into an economic game of $5 tn by 2024-2025.
The dropping, though not unforeseen, was abrupt. India recorded a spectacular 9.4% GDP growth in the first quarter of 2016-17. It’s battling at a weak 26-quarter today. There’s a serious slowdown. The question is how long is it going to last? How many more quarters must pass before India can bounce back on a target path of 8-10 per cent? Will the slew of interventions from Finance Minister Nirmala Sitharaman— from cutting corporate tax to doling out a real estate package — immediately pay off? Is there a way to speed up recovery?
Economists, statisticians and government officials to whom ET Magazine spoke offer mixed reactions. Former chief economic adviser to the nation, Arvind Virmani, says in September or October the economy is expected to have bottomed out. “I expect growth in Q3 to be better than growth in Q2. The problem now is what the government can do to accelerate the revival of growth and reduce the time it takes to return to the growth path of 7.5 per cent, “he says.
What is the prescription for Virmani for now? “In addition to monetary easing by the Reserve Bank of India (RBI), the government needs to simplify the tax on goods and services (GST) and introduce a new direct tax code to clear the tax jungle created by our outdated income tax laws and regulations,” he says.
Once the GDP numbers were announced on Friday, the Ministry of Finance tweeted that growth would pick up from the next quarter, quoting Secretary Atanu Chakraborty, reiterating that the Indian economy’s fundamentals remained strong. Finance ministry officials ‘ aspirations seem to be aligned with some economists such as Virmani.
Nonetheless, not everyone believes that a quick turnaround is possible if a course correction is not pursued by the state. India’s former chief statistician, Pronab Sen, argues that the recent packages from the FM have been too focused on the supply side. He asked if these steps would lead to a faster recovery. “The measures taken by the FM do not address the problem of the reduction of demand. I don’t see any rebound from them, “he adds, adding that the economy will only improve in two to three quarters if the government rapidly transfers its focus from mega highway projects to smaller core business operations with a faster turnaround period.