While it was anticipated that India’s growth will slow down, the current numbers come as a shocker with a sharp decline in both investment and consumption. “People expected growth to be slow, but the most recent numbers have surprised everyone,” Gita Gopinath, chief economist at the International Monetary Fund (IMF) said on Friday, The Indian Express reported. With a “sharp slowdown in investment” and drop in consumption growth, India’s “growth now is primarily driven by government spending,” she said at her alma mater Lady Shri Ram College for Women. The GDP growth has slowed more than what was predicted by analysts and many rating agencies have downgraded India’s GDP growth outlook. IMF is also expected to revise its India outlook in January.
Financial sector derails economic growth
The stress in the financial sector has caused many woes to the Indian economy, said Gita Gopinath. “There appears to be a bit of a credit squeeze in the market. We’ve had a problem with banks and their non-performing assets,” she said. However, talking about India’s IBC institution, she added that “in other countries, which have inherited a large amount of non-performing assets, it took a long time to resolve. But in India, new institutions like the Insolvency and Bankruptcy Code and the National Company Law Tribunal had to be set up”.
Rural blues continue
With a drop in food prices last year, rural demand shrunk as farmers could not earn more. The same had a major impact on FMCG companies as demand slipped. This year as well, while vegetable prices are on fire, especially the onion prices, farmers have not been able to mint money as lack of storage facilities forced them to sell their produce to the middle men. Fast-moving consumer good companies are still struggling with the slump in rural demand.