India has an economic growth problem

As 2019 has developed we have been noting the changes in the economic trajectory of India. Back on October 4th we noted this from the Reserve Bank of India as it made its 5th interest-rate cut in 2019.

The MPC also decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.

This was in response to this.

On the domestic front, growth in gross domestic product (GDP) slumped to 5.0 per cent in Q1:2019-20, extending a sequential deceleration to the fifth consecutive quarter.

For India that was a slow growth rate for what we would call the second quarter as they work in fiscal years.

What about now?

Friday brought more bad news for the Indian economy as this from its statistics office highlights.

GDP at Constant (2011-12) Prices in Q2 of 2019-20 is estimated at `35.99 lakh crore, as against `34.43 lakh crore in Q2 of 2018-19, showing a growth rate of 4.5 percent. Quarterly GVA (Basic Price) at Constant (2011-2012) Prices for Q2 of 2019-20 is estimated at `33.16 lakh crore,
as against `31.79 lakh crore in Q2 of 2018-19, showing a growth rate of 4.3 percent over the corresponding quarter of previous year.

The areas which did better than the average are shown below.

‘Trade, Hotels, Transport, Communication and Services related to Broadcasting’ ‘Financial, Real Estate and Professional Services’ and ‘Public Administration,
Defence and Other Services’.

The first two however slowed in the year before leaving us noting that the state supported the economy as you can see below.

Quarterly GVA at Basic Prices for Q2 2019-20 from this sector grew by 11.6 percent as compared to growth of 8.6 percent in Q2 2018-19. The key indicator of this sector namely, Union Government Revenue Expenditure net of Interest Payments excluding Subsidies, grew by 33.9
percent during Q2 of 2019-20 as compared to 22.2 percent in Q2 of 2018-19.

Regular readers will not be surprised what the weakest category was.

Quarterly GVA at Basic Prices for Q2 2019-20 from ‘Manufacturing’ sector grew by (-)1.0
percent as compared to growth of 6.9 percent in Q2 2018-19.

Also those who use electricity use as a signal will be troubled.

The key indicator of this sector, namely, IIP of Electricity registered growth rate of 0.4 percent during Q2 of 2019-20 as compared to 7.5 percent in Q2 of 2018-19.

In terms of structure the economy is 31.3% investment and 56.3% consumption. The investment element is no great surprise in a fast growing economy but it has been dipping in relative terms. The main replacement has been government consumption which was 11.9% a year ago and is 13.1% now as we get another hint of a fiscal boost.

Switching to a perennial problem for India which is its trade deficit we see that it was 3.8% of GDP in the third quarter of this year. That is a little better but there is a catch which is that it has happened via falling imports which were 26.9% of GDP a year ago as opposed to 24% now. So another potential sign of an internal economic slowing.

We can move on by noting that this time last year the GDP growth rate was 7% and that The Hindu reported it like this.

Growth in the gross domestic product (GDP) in the July-September quarter hit a 25-quarter low of 4.5%, the government announced on Friday.

The lowest GDP growth in six years and three months comes as Parliament has been holding day-long discussions on the economic slowdown, with Union Finance Minister Nirmala Sitharaman assuring the Rajya Sabha that the country is not in a recession and may not ever be in one.

4.5% growth is a recession?


The numbers are rather delayed am I afraid leaving us wondering what has happened since.

Unemployment Rate (UR) in current weekly status in urban areas for all ages has been estimated as 9.3% during January-March 2019 as compared to 9.8% during April- June 2018.


This has been picking up as the Economic Times reports below.

Inflation touched 4.62%, according to the data released by the statistics office on Wednesday, compared to 3.99% in the month of September. Inflation, as measured by the Consumer Price Index (CPI), was 3.38% in October last year.

Sadly for India’s consumers and especially the poor much of the inflation is in food  prices as inflation here was 7.9%. Vegetables were 26.1% more expensive than a year before and it would seem the humble onion which is a big deal in India is at the heart of it. From India Today.

Households and restaurants in India are reeling under pressure as onion prices have surged exponentially  across the country. A kilo of onion is retailing at Rs 90-100 in most Indian states, peaking at Rs 120-130 per kilo in major cities like Kolkata, Chennai, Mumbai, Odisha, and Pune.

For those wondering about any inflation in pork prices then the answer is maybe.The meat and fish category rose at an annual rate of 9.75%.


We noted in the GDP numbers that there was a fall but this seems to have sped up at the end of the quarter as it fell by 3.9% in September on a year before driven by this.

The industry group ‘Manufacture of motor vehicles, trailers and semitrailers’ has shown the highest negative growth of (-) 24.8 percent followed by (-) 23.6 percent in ‘Manufacture of furniture’ and (-) 22.0 percent in ‘Manufacture of fabricated metal products, except machinery and equipment’ ( India Statistics)

Fiscal Policy

From Reuters last month.

After the corporate tax cuts and lower nominal GDP growth, Moody’s now expects a government deficit of 3.7 per cent of GDP in the fiscal year ending in March 2020, compared with a government target of 3.3 per cent of GDP.

Also there is this from the Economic Times.

In India, private debt in 2017 was 54.5 per cent of the GDP and the general government debt was 70.4 per cent of the GDP, a total debt of about 125 of the GDP, according to the latest IMF figures.

The ten-year bond yield is 6.5% showing us that India does face substantial costs in issuing debt.


We get another hint of the changes at play as we note this from the Reserve Bank of India in November and note that the result was 5%.

For Q1:2019-20, growth forecast was revised
down from 7.2 per cent in the November 2018 round
to 6.1 per cent in the July 2019 round.

As we look forwards it is hard to see what will shake India out of its present malaise.Of course if the daily news flow that the trade war is fixed ever turns out to be true that would help. But otherwise India may well still be suffering from the demonetarisation effort of a couple of years or so ago.

After the falls of last year the Rupee has been relatively stable and is now at 71.6 versus the US Dollar. A lower Rupee is something which gives with one hand ( competitiveness) and takes away with another ( cost of imports especially oil). But as it starts its policy meeting tomorrow the RBI will feel the need to do something in addition to changing its fan chart for economic growth ( lower) and inflation ( higher) giving us what is for India something of a stagflationary influence.




7 thoughts on “India has an economic growth problem

  1. Hello Shaun,

    I must admit to a wry smile as 4.5% growth is considered ” recessionary” , our leaders here would be dying for such figures !


    • I felt really down today on the news of Carney
      becoming saviour of the planet so to cheer
      myself up I read the Raving Loonie party
      I particulary enjoyed Islington Norths solution
      to the national debt.
      So , in answer to your question using Loonie
      logic I have concluded that because in general
      Indian people are more vertically challenged
      than us they have more scope for growth :o)

    • Yes they are “dying for such figures” that is according to Greta Thunberg !

      The human race is dying every day from excessive carbon and smog filling our cities around the world.

      According to recent research if you live on or near a main road you inhale more pollutants, it must have been a professor that worked that out as us mere simple mortals wouldn’t know that. But thankfully these highly paid academics have worked it out by using complex methodology and science.

      I thought it was obvious but these experts make it more interesting with all those complex charts and mathematical explanations.

  2. There is another way of looking at this, both China and India have been fast growing economies and as such add to harmful environmental concerns. The slower growth from my aspect should slow down the damage to the environment.

    If the world packs in the need to want more and the population decreases and we all go back to living in caves and mud huts its a possibility global damage to the ozone layer will decrease.

    Well that’s a simplistic theory but in practice its as wild a dream as it is listening to Greta Thunberg sailing around the globe with her Diesel Powered Yacht frightening every kid around the globe that the world is going to end in the next century and we have ruined her dreams.

    To quote Jeremy Clarkson “How dare you sail to America on a carbon fibre yacht that you didn’t build which cost £15million, that you didn’t earn, and which has a back-up diesel engine you didn’t mention”

    Now don’t get me wrong here there is a good point to be made in Shaun’s blog today and that is India growth is slowing as is China growth and it all adds to a slowing economy and it will cause further global problems and it has an impact on us all.

    But unfortunately the world is over populated debt is out of control and the world is in dog poo at the moment to put it lightly.

    I haven’t got the answers at the moment and I don’t think anyone else has. Fortunately I am at the latter end of life being a pensioner but the worry for me and all other pensioners is getting decent treatment if I ever have to end up in residential care.

    But that is a world problem now as in China and Japan and numerous other countries its an aging population that is a major problem and it will put more pressure on the younger generation no only to save for their own retirement but also to fund the present elderly population.

    Sorry for all this doom and gloom but India’s plight will affect us all as will China’s plight we are a global trading nation now and as one economy slows down it will affect another economy.

    But the US seems to have a different agenda now it feels it can be self sufficient, I don’t know how that will pan out either.g

    The only possible solution I can see at the moment is Kin Jung Gong or whatever his name is set off a nuclear war and it decimates the world and we all start all over again. Then we look at history to see where we made our mistakes.

  3. Ah Lakh’s and crore’s – that takes me back! I had the fun of establishing a new business in India during the 90’s and making a couple of acquisitions. I carried around a piece of paper with the definition of Lakh’s and Crore’s with me at all times and triple checked all my calculations as it is very easy to get the noughts and decimal places all mixed up when translating it back to thousands and millions. One could easily make a very expensive error!!

    • Hi Pavlaki

      When I first started looking at some Indian data I wondered if Crore/Rupee was like Yuan/Renminbi? I very quickly fell in that more research was needed. Although in some ways an Audi R8 for 2,72 Crore feels cheap until you start doing some maths! So it was good you took care.

      For those wondering 1 Crore = 10 Million or 100 Lakh.

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