Explained: India’s economic slowdown and growth projections

Various indicators show that the economic slowdown is deeper than expected, and a sustained recovery may take several more quarters unless demand revives.

India, economic slowdown, growth projection, International Monetary Fund, IMF, GDP, World Bank
Industrial production contracted 1.1% in August, the worst performance in almost seven years.

Given the fact that the economy grew 5% in the three months to June, the slowest in 25 quarters, and the high-frequency indicators showed no signs of improvement in the subsequent months, most agencies are lowering India’s growth projections for the current financial year. This week, the International Monetary Fund (IMF) cut its estimate for India’s growth to 6.1% from 7% projected in July. To address the cyclical weakness, the IMF urged the government to use monetary policy and broad-based structural reforms. Similarly, Reserve Bank of India had cut its FY20 GDP estimates to 6.1% from 7.2%, and the World Bank has lowered its forecast to 6%, down from 7.5% in April.

Various indicators show that the economic slowdown is deeper than expected, and a sustained recovery may take several more quarters unless demand revives. Industrial production contracted 1.1% in August, the worst performance in almost seven years. Demand for consumer goods in rural India has recorded its worst performance in the last seven years and car sales have collapsed for 11 months in a row.

The government will have to address the softening private consumption and the structural factors behind weak investment. Private consumption, the bulwark of the country’s growth story in recent years, grew 3.1% in Q1FY20, a four-year low. Much of the cyclical slowdown has affected sectors that are large employment generators and households have been dipping into their savings in the past, while leveraging themselves.

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