The just revealed first quarter growth rate of GDP for the current year ratifies that the crisis situation prevailing in the economy may produce adverse growth rate effects. GDP growth rate was just 4.4% for the first quarter; nearly half of the growth rate achieved during couple of years back. The new low trend is caused by continuing deceleration in the manufacturing sector.
The new trends in GDP growth rate indicate that the economy may undergo one of the lowest growth rates in the post reform era. It is expected that the present rupee related turmoil and the resurgence of inflation, may trigger further tightening of monetary policy in the coming months. A further deceleration of growth is on the card when the RBI declares new anti-inflationary stance.
The impact of a bad beginning for the current will be worrisome for the government. Declining growth rate definitely will reduce tax realization. Mounting subsidy bill in the form of food subsidy and potential loss through diesel subsidies combined by stagnating tax revenues may worsen the government’s fiscal situation.