This situation cannot give rise to sustainable economic growth.
Answers
Economists are renowned for getting their forecasts wrong. Only in April, the IMF had that predicted India will grow at a rate of 7.2 per cent in FY20, but recent data indicates a falling GDP growth (4.5 per cent). The IMF particularly spoke of the “slow growth in rural incomes, domestic demand (as reflected in a sharp drop in sales of automobiles) and credit from non-banking financial companies (NBFCs)” as plausible causes. But not all of this is apparent from data — the growth in household consumption at 5 per cent was actually higher than that of the previous quarter, although lower than its secular average. But it is not low enough to explain the much hyped demand slowdown in many sectors.
Government spending (the usual panacea for growth) jumped nearly 12 per cent and propped up a falling GDP, but could not compensate for the fall in private investment. The decline in bank credit also cannot completely explain the demand slowdown. As per RBI data, over 60 per cent of commercial banks’ retail lending was for housing and education, not consumption spending; with regard to NBFCs, where this perception is stronger, only less than half of all their retail lending was for automobile financing.