India’s GDP growth has rarely dipped below 5% since ’91: Garg

New Delhi: Former Finance Secretary Subhash Chandra Garg expressed concern over India's falling GDP growth in a blog post on Saturday, saying that India has rarely witnessed a sub-5 percent quarterly growth ever since economic reforms were initiated in 1991. Garg also said that a figure less than 5 percent is "more like recession than a slowdown" for an emerging economy like India.

The statement comes a day after data revealed that India's GDP growth has dropped to 4.5 percent in the second quarter of FY2019-20. Garg's view is especially significant as Finance Minister Nirmala Sitharaman said in the Lok Sabha recently that even though the India's GDP growth might have slowed, the country had not entered a recessionary phase.

'India's GDP growth denotes a recession'

"Technically, India is not in recession as defined in the context of advanced economies which grow at only 0-3 per cent normally. For the emerging market economy of India, which has grown in excess of 7.5 per cent per annum for 20 years, a full year growth of less than 5 per cent is more like recession than a slowdown," said Garg.
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'Growth rate hasn't bottomed out'

Joining a chorus of experts who have suggested that fall in GDP is likely to continue into the third quarter of the current financial year as well, Garg said, "Leading indicators of October, including the core industries numbers released on Friday, suggest that growth slowdown is likely to continue in the third Quarter as well."

"There appears to be a widespread stalling of investments in housing, especially the residential segment, roads and telecommunications where investment growth is simply collapsing," he added.

'The system needs a shake-up'

While noting that investment in power and the railways has tapered off, Garg said, "I don't see turn-around of investment cycle in residential real estate space unless there is a shake-up in the existing firms which have become over-leveraged and insolvent as their cost of projects far exceeds their expected revenues from sale of properties."

Garg said that the fundamental business model of residential housing would need to be changed and modelled on the lines of the commercial real estate. In the power sector (October growth at negative 13 percent), financial viability at the distribution and supply end will have to be structured, "otherwise this is likely to drag generation and transmission into sickness very soon," he said.