New Delhi, India – The Indian economy expanded at its weakest pace in more than six years, according to official data released on Friday, adding pressure on a government that is already dealing with a sputtering economy.
The economy grew at 4.5 percent for the three months ending September, down from 5 percent in the previous quarter and down from 7 percent for the same period a year earlier, official data showed.
“The economy is passing through a declining growth momentum and there is no easy way out,” said Sunil Kumar Sinha, principal economist at India Ratings, a Fitch unit.
The pace of economic growth fell below 5 percent for the first time since the quarter ending March 2013 when it clocked 4.3 percent.
“The private sector is definitely down both for consumption and investment and that’s the fundamental problem in the economy today,” said Madan Sabnavis, chief economist at CARE Ratings. “We’ll have to live with this low growth scenario for the rest of the year.”
That slowdown has been visible across the country including in the low growth of utilities, including electricity – 3.6 percent, down from 8.7 percent a year earlier – indicating a slowdown in manufacturing, economists say.
Never seen a drop like this
For the five months ending August, India’s auto sector saw a dip of 13.3 percent in sales compared with the same period a year earlier, according to CARE Ratings. This was the first double-digit dip for the sector since 1993.
“We’ve never seen a drop like this,” Darshini Kansara, the deputy manager of industry research at CARE, told Al Jazeera. “It’s pretty bad.”
That crash in demand for vehicles is being felt by Gaurav Virmani who runs a steel trading business in Ludhiana, an industrial hub in northern India. His company supplies steel to firms that make parts for auto companies, among others. He now buys 300 tonnes of stainless steel sheets a month, half of what he was buying last year to sell to clients. “We are definitely feeling the pain,” he said. While Virmani looks for new sectors to expand into, “nothing can replace the auto sector,” he said.
It’s not a recession.
Earlier in the week, during a heated debate in Parliament on a slowdown in the economy and related job losses, members of the opposition parties said the country faced an “economic emergency”.
Finance Minister Nirmala Sitharaman acknowledged that there was a slowdown but said there was no recession.
“Growth may have come down, but it’s not recession yet or it won’t be recession ever,” she said.
Prime Minister Narendra Modi‘s government has taken several steps, including cutting corporate tax, a bailout package for the cash-strapped housing sector, promises to speed infrastructure spending and a rollback of newly introduced taxes on foreign investors, to boost investments and bolster economic growth.
However, all policies proposed by the government to address the slowdown seem to focus on businesses and not individual earners, points out CARE’s Sabnavis. “They don’t add more spending capacity in the economy.”
Retailers are feeling the pinch, they said.
At a store in a mall in southern Delhi that sells clothes by Indian designer Satya Paul, there are only a couple of people browsing the lineup of saris and long tunics. There are no takers for the silk ties and matching pocket handkerchiefs that adorn one wall of the store. “Business is down nearly 20 percent this year,” said store manager Shiv Thakur, a first in that store’s eight-year history.
Mohd Ali, who manages the French fashion chain Promod’s store across from Satya Paul, has the same complaint with sales down nearly 15 percent in the last three months. “We’ve grown every year,” he said. “This is the first time we’re not growing.” There’s a sign for “Black Friday 50 percent discount” but the store is fairly deserted.
Next door, at United States shoe store Steve Madden, the sale of boots is yet to pick up, said store manager Rajesh Kumar. “It’s the end of November and customers are yet to start buying boots. This is not normal.”
The slowdown comes on the back of controversial flagship reforms implemented by the Modi government in the past few years: There was a sudden clampdown in November 2016 on more than 80 percent of the currency in circulation in a bid to crack down on the black market, followed by a massive sales tax overhaul the next summer that created a lot of confusion and compliance burdens, especially for small traders who account for about a third of the economy.
Friday’s data shows that the pain is far from over.
“A bottoming-out of growth could be further down the road,” said Sreejith Balasubramanian, an economist at IDFC Asset Management Company in Mumbai. A quick recovery, he said was unlikely as “consumer demand, credit supply, and risk appetite remain lacklustre.”