The GDP growth for the second quarter fell to over six-year low of 4.5 per cent, primarily due to contraction in manufacturing, weak investment and consumption demand, data released on Friday showed.
The GDP growth, now well below the level needed for India to provide the millions of jobs required each year for new entrants to the labour market, poses a major headache for Modi.
The unemployment rate in October rose to 8.5 per cent, it's highest since August 2016, according to the Centre for Monitoring Indian Economy (CMIE) data released earlier this month, though the government estimates that urban unemployment declined. ET's Opinion Editor TK Arun shares his views on Q2 GDP data.
"Technically, India is not in recession as defined in the context of advanced economies which grow at only 0-3 per cent normally".
"A rate cut is definitely on the cards", said Anagha Deodhar, an economist at ICICI Securities, Mumbai, adding that markets are sceptical about how effective monetary policy can be in boosting growth in the current scenario.
Among recent measures taken by the government to boost growth are recapitalization of banks and a sharp reduction in corporate tax rates.
Reacting to the GDP data, Edelweiss Securities' Economist Madhavi Arora said: "The GDP growth softened to 4.5 per cent in 2Q - a tad lower than our expectations of 4.7 per cent".
The announcement marked the sixth straight quarter that GDP growth had tumbled, sending economists and researchers scrambling to reassess forecasts for the full year.
The Reserve Bank of India has already cut interest rates by 135 basis points this year to the lowest since 2009, with more easing to come. The combined Index of Eight Core Industries stood at 127.0 in October 2019, which declined by 5.8% as compared to the index of October 2018.
Bulls, however, failed to capitalize on the early uptick to fresh weekly tops, albeit the pair has still managed to hold with modest daily gains post-Indian GDP growth figures.
The government expects growth to recover as consumption and investments pick up. "We are fairly convinced that GDP growth in India is likely to stay low and likely to stay range bound over the next four to six quarters", she said. The central bank is expected to look through the recent breach of its 4% medium-term inflation target and deliver another rate cut on December 5. The finance minister did not speak on the likelihood that the government might overshoot its fiscal deficit target because of the lowering of taxes and increased spending.
The Dwelling Minister stated that authorities is dedicated to strengthening the trade and the commerce and stated: "By lowering the corporate tax ranging between 17 to 25 per cent, India has got the distinction of one of the lowest corporate tax levying country".