The country’s GDP grew at a modest 4.5% in the September quarter. This marks the sixth straight fall in quarterly GDP growth and also the first time in almost seven years that it has fallen below the psychologically important 5% mark. Depressed consumer sentiment, lackluster global economy and trade, stress in NBFC sector and a leveraged corporate sector have all contributed to the slowdown. Growth slowdown will have a bearing on tax collections and will likely add to fiscal challenge. Nominal growth was 7% against 12.3% last year, adding to the government’s tax collection woes.

Why better days may be ahead

A large part of investment growth in the quarter came from government final consumption expenditure (proxy for government spending) that increased by 15.3%, a multi-quarter high. Contrary to evidence of worsening consumption, private final consumption expenditure (proxy for consumption spending), grew by 5.1%.

In the recent months, there has been a meaningful fiscal push from the government. The corporate tax cut, modifying labour laws, expanded scope of insolvency proceedings, and efforts to move stalled real-projects clearly show the government’s determination to bolster the economy. According to Pravin Srivastava, chief statistician and secretary of the ministry of statistics, the impact of the stimulus package will start showing up from the third quarter.

If corporate results are any indication, lot of companies have surprised positively on the earnings front. Falling raw material prices, lower fuel prices, cost control measures and the corporate tax cut have all helped companies report healthy earnings growth. Inventory levels have reduced for automobile companies, and they are indicating a demand uptick going forward, especially in the passenger vehicle arena.

Delayed monsoons pushed the kharif crop beyond the September quarter, and hence the full benefits of it were not fully captured in this quarter’s numbers. Furthermore, due to this year’s monsoons, water table levels across the country are healthy. This will bode well for the rabi crop. A healthy crop would be an important driver for rural income, which in turn could help in kickstarting the economy.

As an additional icing on the cake, benign commodity prices and crude oil bode well for India’s GDP as India is a net importer of commodities and fuel. As can be seen, the ingredients for a sustained period of economic growth are in place. It is only a question of time before India’s GDP starts meaningfully firing ahead.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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