New Delhi: Slowdown in overall business activity plunged the Indian economy in the first half of 2019-20, as macro-economic data points showed contraction in major industries’ output coupled with lower tax collection rate.
Economists and industry watchers blamed the consumption slowdown and heavy rainfall and flooding in several states in September as the prime reasons for the dismal performance.
One of the key data points — Index of Eight Core Industries — showed that over (-) 5 per cent contraction in September came after a marginal growth of 0.1 per cent registered in August.
Another key data point on government’s accounts, revealed that India’s budgetary fiscal deficit for the April-September 2019-20 period came in at 92.6 per cent, or Rs 6.51 lakh crore, of the budget estimates (BE).
The contrast in output pace was even more evident on a year-on-year basis, when the growth rate stood at 4.3 per cent in September 2018.
The eight core industries include coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.
The Index showed that barring fertilisers, all the other seven sectors contracted in September.
On a sector-specific basis, the refinery output, which has the highest weightage of 28.03, plunged by 6.7 per cent in September compared to the same month of the previous financial year.
Similarly, electricity generation, which has the second highest weightage of 19.85, decreased by 3.7 per cent. Steel production, the third most important component with a weightage of 17.91, slipped by 0.3 per cent during the month under review, whereas coal mining, with 10.33 weightage, was down by 20.5 per cent.
Extraction of crude oil, which has a weightage of 8.98, declined by 5.4 pe r cent in September. The sub-index for natural gas output with a weightage of 6.87 inched lower by 4.9 per cent.
Cement output, which has a weightage of 5.37, fell 2.1 per cent, whereas fertiliser production, which has the least weightage of 2.62, increased 5.4 per cent in September.
“Such a low growth in core sector industries has not been witnessed so far in either 2011-12 base or the 2004-05 base series,” said India Ratings and Research’s Principal Economist Sunil Kumar Sinha.
“This clearly indicates the severity of the ongoing industrial slowdown. With current inflation within the RBI target range and likely to remain so in the near term, India Ratings and Research believes another rate cut in the December 2019 policy review is nearly a certainty.”
Rajat Bahl, Chief Analytical Officer and Head, Financial Institutions, Brickwork Ratings, said the recent measures taken by the government to revive growth are expected to help reverse the current trend in the medium term.
“For faster results, there is a need to boost demand. Some of the measures that can be considered include reduction in personal income tax and measures to revive the ailing real estate sector.
In terms of fiscal deficit, the government has targeted the fiscal deficit to be at Rs 7.03 lakh crore for 2019-20.
As per the Controller General of Accounts (CGA) data, the fiscal deficit during the corresponding months of the previous fiscal was 95.3 per cent of that year’s target.
“The worrying trend is dismal performance of tax revenue, on quarterly basis, net tax revenue growth declined to 3 per cent in 2QFY20 from 6 per cent in 1QFY20, leading to 1HFY20 net tax revenue growth of 4.2 per cent,” said India Ratings & Research’s Chief Economist Devendra Kumar Pant.
ICRA’s Principal Economist Aditi Nayar said: “With a subdued growth of tax revenues, the Government of India’s fiscal deficit rose by a substantial 92.6 per cent to Rs 6.1 trillion in H1 FY2020, and stood at a consider able 93 per cent of the full year budget estimates.”
“The transfer of funds from the RBI has cushioned the impact of the muted 4 per cent growth in the GoI’s net tax revenues, and helped its overall revenue receipts to expand by a healthy 18 per cent in H1 FY2020.”
