India’s economic slowdown intensified in the festival quarter with gross domestic product growing half a percentage point slower than in the previous quarter. Although consumption has revived, increased government spending over June-September made up for the reverses in investment activity. At its core, Indian industry is cooling rapidly with industries like coal, steel, cement and electricity contracting in October.

Manufacturing stopped growing in the second quarter and infrastructure industries have not grown in the first seven months of this year. The chill has now spread to the services sector where heightened government spending masked widespread sluggishness.

This picture becomes even more worrisome with the government having notched up the budgeted fiscal deficit for the full year by October. Fiscal stimulus is fast running out of wiggle room. Naturally, the expectations will be for interest rate cuts from the central bank when it meets next month, but easing monetary policy to revive demand is a bit like pushing on a string. The National Democratic Alliance government has displayed a low tolerance for inflation in its previous term, but reviving a sputtering economy might require stronger medicine than interest rate cuts that do not work their way to the consumer. It may be time to review the fiscal glide path.

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