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India’s low GDP data released on Friday has followed a pattern of subdued economic growth, a trend that began in 2019. During the last quarter of the 2019-2020 fiscal year ending on March 31, the GDP grew at 3.1 per cent, less than 4.1 per cent in the previous quarter. Overall, the economy grew at 4.2 per cent, slower than the projected 5 per cent.

The latest numbers are believed to be provisional and may not have captured the true state of the economy. Also, a nationwide lockdown that halted business activity began in the last ten days of March, leading to a widespread disruption of trade, commerce and manufacturing. Therefore, how badly the lockdown impacted the economy will only be known in the current quarter’s data due in August. But sector-specific data of pre-pandemic business activity is an indication that the economy was in bad shape long before coronavirus brought everything to a grinding halt. For example, trade, hotels and transport grew at 2.6 per cent while the financial sector was close behind at 2.4 per cent. Similarly, manufacturing shrank by 1.4 per cent, prompting Goldman Sachs to predict a contraction of five per cent during the financial year ending in March 2021.

The government of Prime Minister Narendra Modi is facing two significant challenges — the growing pandemic numbers and a massive deceleration of the economy compounded by the disease. Still, blaming the pandemic alone for weak growth will be a simplistic reading of the economy. Poor institutional credit and dismal consumption in quarters preceding the outbreak had weakened the economy, and the latest data shows a massive deceleration. Modi enjoys enormous popularity and has the political capital required to weather this crisis, and his party enjoys immense legislative power to minimise the damage.

However, the scope of government intervention is limited, given a dramatic fall in tax revenue and other macro factors. Unlike developed economies, including Germany, which have the financial muscle to spend tens of billions of euros to shore up business, India has fewer options. Experts have recommended a heavy dose of liquidity into the system by utilising a powerful tool at the government’s disposal — printing more currency notes. This will place money in the hands of people and businesses, boosting consumption and production. Still, experts warn, the consequences of a prolonged deployment monetary policy to boost a sagging economy can be far-reaching. More currency notes in the system will lead to inflationary tendencies, something the government must be wary of and tread cautiously.