Finance Ministry Flags Slowdown In Economy In Last Fiscal
The Finance Ministry said declining growth in private consumption, tepid increase in fixed investment, and muted exports caused a “slight” slowdown in the year ended March.
The drop in private consumption in January-March reflected in the slowdown in two-wheeler sales, in line with declining real GDP growth, according to the ministry’s monthly economic report for March—published on May 1.
The second advance estimates released by the government had projected India’s gross domestic product to grow at 7 percent in 2018-19. The Reserve Bank of India, too, expects the economy to grow at the same pace.
The RBI’s monetary policy attempted to give a fillip to India’s growth through cut in interest rates and easing liquidity in the system, the report said, adding the room for this monetary easing has been created by low inflation in 2018-19. Since RBI Governor Shaktikanta Das took charge in December, he has reduced policy rates by 25 basis points each in February and April.
“Though easing of monetary policy has the potential to support growth, the recent cuts in repo rate are yet to transmit to weighted average lending rate of banks. Thus, the effects of easing on investment activity are yet to manifest,” the report said.
Also, reversing slowdown in growth of agriculture is a challenge, along with sustaining the growth in the sector, it said. The growth in gross value added in agriculture has been slowing since April-June 2018 and may continue to fall in January-March 2019, too, the report said.
CAD May Lower
India’s current account deficit fell in October-December over the previous quarter. The gap may have lowered further in the January-March quarter due to fall in imports, the report said. Current account deficit in October-December was 2.5 percent of GDP.
Exports Face Headwinds
The real effective exchange rate had appreciated in January-March and could pose challenges to the revival of exports, according to the report. An appreciation in REER—weighted average of a country’s currency compared to an index or basket of other major currencies—may have slowed growth of exports towards the end of the year, it said.