Explained: What is the fallout of a reduced GDP growth rate

Faltering growth puts pressure on the government and the Reserve Bank of India to take measures to boost growth. It will be difficult for the Centre to announce any fiscal stimulus or increase its spending as it is already facing a tight fiscal situation.

India’s economy grew at a much-lower-than-expected rate of 5.8 per cent in January-March quarter, its lowest level in five years, as per data released by the Central Statistics Office (CSO) Friday. For the full year of 2018-19, Gross Domestic Product (GDP) growth was at at 6.8 per cent, lower than 7.2 per cent in the previous financial year. The fourth quarter growth pushes India below China’s which grew at 6.4 per cent during January-March period. Most economists had projected GDP growth of 6.3 per cent in January-March. Growth rate has been steadily falling in 2018-19, from 8 per cent in Q1 to 7 per cent in Q2, 6.6% in Q3 and 5.8% in Q4.

What is the fallout

Faltering growth puts pressure on the government and the Reserve Bank of India to take measures to boost growth. It will be difficult for the Centre to announce any fiscal stimulus or increase its spending as it is already facing a tight fiscal situation. The RBI in its monetary policy on June 6 could further reduce repo rate – the key short term policy rate at which it lends to banks – by another 25 basis points. The upcoming budget by the new government could take steps to stimulate economic growth.

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