MUMBAI: India’s economic slowdown is deeper than anticipated, with gross domestic product (GDP) growth for the fiscal fourth quarter coming in at 5.8%, a five-year low.

At the outset, it shows the first innings of the Narendra Modi-led National Democratic Alliance government in poor light.

Now that the ruling party has got a second chance, markets are hoping the government will fix what is broken and infuse life into the economy. The surge of stock indices to all-time highs last week shows that markets are confident of growth-boosting measures.

The quickest way to boost economic growth is to get people to spend more. The upcoming Union budget is being looked upon as the platform to do just that.

One way to boost consumption is to give farmers more income since rural distress is a trigger for the consumption slowdown.

Shubhada Rao, chief economist at Yes Bank, expects the government to address the rural distress head-on. “We should expect shifts in expenditure patterns of the government now. In all probability, the budget will enhance farm sector subsidies and increase the total disbursal to rural," she said.

Indeed, agriculture is gasping, having shrunk 0.13% in the fourth quarter against an expectation of a marginal growth of roughly 1%. What began with farmer protests after food prices collapsed earlier last year ended with rural consumers tightening their purses even for staples like soaps, besides discretionary purchases.

In the interim budget in February, the government announced it would pay farmers a set income every year, although the benefit was only for those who qualified for a threshold of land ownership. Analysts hope the government will widen this net.

Not just farmers, even businessmen are unwilling to produce more. Manufacturing growth slumped in FY19. Indian businessmen didn’t want to produce more as they were not sure of the demand for their wares.

Inventory levels in automobiles and real estate have surged. Obviously, there is no intention of investing in capacity addition.

Asking businessmen to invest is trickier than pushing Indians to spend more. Analysts at Kotak Securities said in a note that invigorating investment needs reforms, which may not show an impact in the short term.

“Reflating meaningfully in the near term is difficult without fiscal slippage or aggressive monetary stimulus, while the next set of reforms will require political capital, cooperative federalism and non-political consensus, which are unlikely to be easy," said the note.

No wonder economists have begun lowering their forecast for FY20 GDP growth. Rao of Yes Bank believes that growth would be about 7% instead of the 7.2% she had expected earlier.

Analysts at Kotak Securities have lowered their expectations to 6.8% from 7.1% earlier.

Considering that FY19 GDP growth has come in lower than the forecast of the Reserve Bank of India, and the outlook, too, looks benign, analysts expect the central bank’s six-member rate-setting committee to vote for a rate cut at the three-day meet beginning on Tuesday.

Analysts at Nomura Financial Advisory and Securities India Ltd and Bank of America Merrill Lynch have been calling for a rate cut at the June policy meeting even before the dismal GDP growth figure was released. More importantly, the central bank is expected to lay out a strategy through which it would unclog the flow of funds to non-bank financiers and provide more funds to banks.

What analysts are sure about is that the economy needs a package, not just a solo act. “For growth to revive, it needs a combination of fiscal and monetary measures," said Rao.

Clearly, the central bank has more firepower in the short term as inflation remains below its 4% target. That said, how wide the government open its wallet will determine how fast India’s growth picks up. The Union budget will answer this.

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