While the economy has been seeing a deceleration from its heady pace, there is no threat of it hitting a recession, Finance Minister Nirmala Sitharaman has said. Sitharaman said the government was monitoring the situation and would tweak policies to prevent the economy from slipping further.
Second-quarter GDP numbers
"Every step being taken is in the interest of the country," the minister said in her reply to a discussion on the economic situation in the Rajya Sabha on Wednesday. "Looking at the economy in discerning view, you see that growth may have come down but it is not recession yet; it won't be recession ever," said Sitharaman. A recession is typically defined as economic contraction through three successive quarters.
"Every step that is pertaining to different sectors, whether it is MSME (micro, small and medium enterprises) or banks... these steps... I review on a weekly basis."
Sitharaman blamed the fall in gross domestic product (GDP) growth in the last two financial years on the lagged effect of the stress on banks due to non-performing assets (NPAs) or bad loans and ballooning corporate debt. Sitharaman blamed this on the Congress-led United Progressive Alliance (UPA) government's policies.
"That's when phone banking was also happening," she said, referring to political pressure on state-owned banks. "It (slowdown) has not dawned one morning. It has obviously got a trail. If you want to go back to see where the trail lies, you know where it lies," she said.
The economy expanded 5 per cent in the June quarter, its slowest annual pace in six years, an Economic Times report said. The second-quarter GDP growth numbers, to be released on Friday, are not expected to be better, according to analysts.
The GDP growth slowdown was pronounced in the first quarter of FY20, the minister said. Sitharaman said the government had taken several measures to address issues faced by the various sectors, including recapitalising public sector banks and consolidating them.
"I just want to highlight that 32 steps were taken by me… Every step that is pertaining to different sectors, whether it is MSME (micro, small and medium enterprises) or banks… these steps… I review on a weekly basis," she said.
While Sitharaman rules out the possibility of a recession, some economists believe that along with the domestic factors, several international factors may also contribute to recession fears. Although India is still quite a distance away from a recessive turn, a combination of factors, domestic and international, could trigger an undesirable situation.
Sitharaman said Prime Minister Narendra Modi was taking a personal interest in the matter "so that the economy can be on a higher trajectory". Prime Minister Modi has vowed to make India a $5-trillion economy by 2025. Some economists say this may be difficult considering the marked deceleration in economic growth.