That India’s economy has been steadily losing momentum is undeniable, but what to make of a drop in growth to 5% for the first quarter of 2019-20? The figure for the previous quarter from January to March was 5.8%. Such a sharp sequential drop makes us wonder: How might the rest of fiscal 2019-20 turn out? Several agencies have recently lowered their growth forecasts for the whole year. Moody’s projects it at 6.2%, lower than the 6.8% it had predicted earlier. The Reserve Bank of India (RBI) also cut its growth forecast to 6.9%. Now these numbers are beginning to look over optimistic, given that other signs of distress have not receded in July and August, the first two months of the year’s second quarter. With just seven months left, could a recovery be brought about before the year is out?
Most of the recent measures adopted by the government will take some time to push up growth. The consolation is that credit flows could increase soon enough, which might possibly arrest the slide in a few months. According to RBI, the slowdown in several sectors appears cyclical in nature, so the usual tools of pumping more money around could address it. The worry is that a sectoral approach will prove inadequate. Domestically, India is grappling with a wide variety of problems, including rural distress amid a decline in wages and farm incomes. Uneven monsoon rains have meant that crop output could suffer. Globally, the outlook is grim and getting grimmer. If a worldwide recession kicks in, our economy cannot hope to stay insulated.
For a sustainable return to a higher growth path, maybe there’s no getting away from structural reforms. Easing restrictions on agricultural marketing and in land and labour markets, the three focal areas highlighted by RBI, may not have an immediate effect either, but such big-ticket reforms could make for a sharp rebound once the worst is behind us.