Growth slows, India Inc seeks rate cut

New Delhi: Mirroring a subdued economic performance, India’s growth rate declined to seven per cent in the first quarter — a dip of 0.5 per cent on sequential basis — and infrastructure output slowed to three-month low of 1.1 per cent in July, raising clamour for a rate cut by the Reserve Bank and critical policy reforms to fuel growth.

India, which had overtaken China with 7.5 per cent growth rate in the January-March quarter, recorded seven per cent GDP growth and 7.1 per cent Gross Value Added (GVA) in April-June.

Although GDP growth in the first quarter is higher than 6.7 per cent a year ago, GVA — a new concept introduced by CSO to measure the economic activity — slipped from 7.4 per cent in the corresponding period of the last fiscal.

Contraction in steel production and lower output of coal and refinery products dragged down growth rate of six infrastructure industries, which account for nearly 38 per cent of the country’s industrial output, to 1.1 per cent in July from 3 per cent in June. These figures do not suggest a promising growth outlook for the second quarter.

Also, the fiscal deficit data released by the government today showed that the government has run a deficit of 69.3 per cent of the full-year target at the end of July as against 61.2 per cent a year ago. The decline in the economic growth in the first quarter was on account of subdued output of farm, manufacturing and utilities like power, gas and water supply.

A worried industry pitched for easing of interest rate by RBI and action on critical reforms by the government to boost economic activity. RBI is scheduled to announce next policy review on September 29.

“The government should continue to push critical reforms and take pro-active steps to effect simplification of procedures, ensure transparent and flexible tax system and work towards a political consensus for ensuring early passage of GST, labour laws etc, which would rev up business confidence and would help ramp up demand in the economy. “On the monetary side, RBI should ease its monetary policy stance and cut interest rates in its forthcoming monetary policy,” said CII director general Chandrajit Banerjee.

According to the data, the nominal GDP and GVA at current market price showed a steep decline in the quarter under review. The nominal GDP slipped to 8.8 per cent in Q1 from 13.4 per cent a year ago while the GVA growth rate nearly halved to 7.1 per cent from 14 per cent a year ago. The government towards the beginning of the fiscal has projected a growth rate of 8.1-8.5 per cent in the current fiscal, which may be difficult to achieve.

Ficci president Jyot-sna Suri said efforts were needed to push domestic demand through policy and monetary initiatives. “Both consumption and investment levers need a thr-ust. While the government stands committed to further the reforms agenda, we need to equa-lly create conditions that provide capital at an affordable cost,” she said.