Why India’s GDP growth declined: the role of industry
India has been growing rapidly in recent years and is one of the fastest growing economies. However, negative trends have been observed for some time, which have affected different segments. According to the official statement of the main financial institution of the state, India’s GDP growth was 4.2%, which indicates the processes of economic slowdown.
Consumer demand and investment volume has been declining for 5 quarters already. This GDP level is the lowest since the second quarter of 2013.
Experts of the State Bank of India predict that the trend of slowing down will be observed in the future as well. It is likely that the decline is caused by problems in different segments: reduction of air traffic and car sales volumes, reduction of investments into the construction and infrastructure development sector.
Climate conditions are another negative factor for the economy. The country was hit by massive monsoons, which in some regions exceeded average values. They damage crops and agriculture, which in turn leads to economic decline in the regions where this type of labour is considered the main activity.
However, the bank’s analysts hope for improvement. In their opinion, India’s GDP growth rate should increase to 6.2% by 2021. The institution will present a more accurate forecast in February next year, when there will be more data for analysis.
The state of the world economy should also be taken into account. The global slowdown has also affected the situation in the country, aggravating domestic processes.
India’s industrial sector is also experiencing difficulties. Its volume fell by 4.3% over the year, which is the lowest since 2013, when the figure was 4.4%.
In the capital goods segment, there was a 20.7% decrease. This result indicates weak demand in the country.
The speed of recovery of GDP growth rates is primarily affected by the state of affairs in industry. As long as there is no improvement in the industry, there is no point in talking about rapid economic development.
Decrease in industrial production by 4.3% has become a critical indicator, which was not envisaged by analysts. According to the forecasts published earlier, the decrease should have made 2%. The volumes of consumer goods fell by 9.9%.
India also recorded a rapid decline in demand for electricity, which has not been observed for 12 years. This situation suggests that the industry does not need a lot of resources due to the decline in output.
In order to stimulate the slowing economy, the Bank of India lowered the key interest rate. REPO was reduced to 5.5%, a record low for the last 10 years.