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03-May2019

Indian economy slowed down slightly in FY19: Finance Ministry

The Finance Ministry in its monthly economic report for March has said that Indian economy slowed down slightly in the fiscal year 2018-19 (FY19), though it is still fastest growing major economy. The proximate factors responsible for this slowdown include declining growth of private consumption, tepid increase in fixed investment, and muted exports. It further says there is slowdown of growth in agriculture and sustained growth in industry as well as some challenges.

The Ministry said the Headline inflation - measured using the consumer and wholesale price indices - declined in 2018-19 though inflation has firmed up slightly in recent months. The current account deficit, as percentage of the GDP, improved in Q3 and is set to further improve in Q4 of 2018-19 as the dip in imports has improved the merchandise trade deficit. In line with declining real GDP growth, private consumption in Q4 of 2018-19 has also declined as reflected in the drop of growth of two-wheeler sales towards the end of the year. On the external front, the report said that the current account deficit as ratio to GDP is set to fall in Q4 of 2018-19, which will limit the leakage of growth impulse from the economy.

The monthly report said the fiscal deficit of the Central government has been gliding down to the FRBM target. Monetary policy has attempted to provide a fillip to the growth impulse through cuts in repo rate and easing of bank liquidity. The room for this monetary easing has been created by low inflation in 2018-19, although it has started to inch up in last few months of the year. The real effective exchange rate has appreciated in Q4 of 2018-19 and could pose challenges to the revival of exports in the near future. Increase in foreign exchange reserves in Q4 of 2018-19 on account of improvement in trade balance has increased the import cover for the economy. It also pointed out that while Gross Fiscal Deficit of the Centre has steadily declined in last few years, capital expenditure has been volatile.


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