Out of all agencies, Care rating agency estimated the highest of 6.2 per cent Q2 GDP growth, while Reuters Polls showed the lowest of 4.7 per cent a day before, but the government data settled an unexpected number at 4.5 per cent. Manufacturing output contracted 1 per cent.
"There is a strong case for a fiscal stimulus to prop up the economy", said N.R. Bhanumurthy of the National Institute of Public Finance and Policy. "It does not augur well both for the government and the corporate sector as tax collection of the government and top line of the corporate sector is linked to nominal GDP", says Sunil Kumar Sinha, principal economist, India Ratings. The previous low was recorded at 4.3 per cent in the final quarter (January-March) of 2012-13.
India needs to grow at around 8 percent to create enough jobs for the millions of young people joining the labour force each year, yet many economists see the current slowdown continuing for another year or two, underlining the case for urgent reforms. But independent economists are doubtful that India is on the brink of a turnround, saying the problems festering in the shadow banking sector are likely to continue to weigh on the country's growth.
Based on the unfavourable performance of the core sector, the contraction in the IIP appears set to deepen in October 2019, even as other indicators of demand such as petrol and ATF consumption have recorded an improved performance in that month.
Manufacturing, which is a focus area for Modi's administration as India tries to woo investors, declined 1% in July-September from a year ago, while farm output grew 2.1%.
However, Delhi expects growth to recover as consumption and investments pick up.
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The GDP growth rate had also been predicted by experts.
"Today's weak print was well telegraphed, and while the Reserve Bank of India did not project this kind of weakness, we do not think their view on growth trajectory will change materially", said Rahul Bajoria, senior economist with Barclays Bank Plc in Mumbai. Rise in fiscal deficit can also increase the government's borrowing expensive.
We hope that the RBI announces interest rate cuts and the government implements measures to improve the growth rate of the economy. The central bank is expected to look through the recent breach of its 4% medium-term inflation target and deliver another rate cut on December 5. Singh said, "The sharp decline of GDP from 5% in Q1 to 4.5% in Q2 is worrisome".
The Home Minister said that government is committed to strengthening the industry and the trade and said: "By lowering the corporate tax ranging between 17 to 25 per cent, India has got the distinction of one of the lowest corporate tax levying country".
Value-added growth in the farm sector was just 2.1% as compared to a growth of 4.9 percent the same time past year.