Although the new year is supposed to start on a cheery note, for India problems abound. As the economy steps into a new year, the government will have a lot, besides the political front, to deal with . The economy is nowhere near recovery, and GDP data highlights growing concerns. The second-quarter GDP slumped to 4.5%, declining for the sixth straight quarter. Although base effect may help overcome this, estimates suggest that Indian economy will barely go above 5%—RBI projects the economy to grow at 5.1% in FY20, way off the 7.4% forecast at the start of the year.
Meanwhile, gross fixed capital formation (investment) has fallen drastically. In the second quarter, it recorded a growth of a mere 1%, much lower than the 11.8% growth recorded in Q2 of FY19. CPI figures are no better. While the low prices were a reprieve from declining growth, but inflation has been rising steadily over the last ten months. November recorded inflation of 5.56% (just a shade below the 6% RBI ceiling). IIP, on the other hand, has been in the negative for the last three months, even auto sales show no sign of recovery. Two-wheeler sales, a proxy for rural consumption, have been in the negative for a full year now. Gross tax revenues are no better, tax collections till October have only increased 1.22% over last year. GST collections have also slumped. With credit growth numbers also showing a decline, nothing seems to be working for the Indian economy. The high-frequency data show that the third quarter is going to be no better. India needs structural reforms if it is to regain the tag of the fastest-growing economy. Otherwise, it shall stand reduced to its earlier moniker of fragile five.
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Source: Financial Express