There is economic slowdown, but no signs of recession: FM Sitharaman

Finance Minister Nirmala Sitharaman on Wednesday defended her handling of the economy, saying steps taken by the government since the Union Budget presentation had started bearing fruit and some sectors such as automobiles are showing signs of recovery. The minister added that while economic growth had slowed in the past few quarters, the country was not undergoing a recession.

“Every step being taken is in the interest of the country. Looking at the economy in discerning view, you see that growth may have come down, but it is not a recession yet and it won’t be a recession ever,” she said while replying to a discussion on the economic slowdown in the Rajya Sabha.

Sitharaman’s reply was marked by unruly scenes and some disruptions, especially by Anand Sharma of the Congress. A number of Opposition members staged a walkout.

The finance minister touched upon the difficulties in meeting the fiscal deficit, and indirectly signalled a fiscal slippage for the year.

“A lot of concern has been raised over the fiscal deficit. In the July Budget, I pegged it at 3.3 per cent of GDP (gross domestic product). Although the FRBM Act has been there since 2004, on average, the fiscal deficit during the UPA-2 was 5.5 per cent of GDP. In our first term, the average was 3.6 per cent,” she said.

“They (the Opposition) should know that there are difficulties in maintaining fiscal discipline and sometimes it is not possible… I appreciate the anxiety (about the fiscal deficit), but the people who ran it well above 5 per cent should know what is fiscal management,” she added.

While the Centre has not revised its fiscal deficit target for the year, officials expect a slippage, given that tax revenue shortfall is expected to be larger than Rs 2 trillion in the current financial year.

Sitharaman blamed the lagged effect of the twin balance sheet crisis in banks due to non-performing assets (NPAs) on the one hand and heavily indebted corporates on the other, resulting from the UPA regime lending, for the fall in GDP growth in the past two financial years.

“As a result of the twin balance sheet (crisis), private investment suffered and that led to the slowdown. Therefore, in 2017-18, GDP growth was 7.2 per cent, and in 2018-19, it was 6.8 per cent,” Sitharaman said, admitting that the decline was very pronounced in the first quarter of 2019-20. Real GDP growth for the April-June quarter was 5 per cent, the lowest since 2013. 

Nominal GDP growth came in at 8 per cent, the lowest since the third quarter of 2002-03. The July-September quarter numbers are expected to be even worse, various estimates suggest. 

Allaying concerns over the revenue position of the government, she said direct tax and goods and services tax (GST) collections had seen an increase in the first seven months of the current fiscal when compared to the same period of the last year.

Rejecting criticism that her maiden Budget on July 5 had failed to address concerns of a slowing economy and so had to resort to announcing measures within a month of the passing of the Budget by Parliament, she said the Economic Survey and she had recognised the need for recapitalisation of banks and reforms in the Budget speech.

On the GST, she said out of the Rs 6.63 trillion net collections targeted in the year through March 31, 2020, Rs 3.26 trillion had been collected during April-October. Month-wise GST collections had grown year-on-year, she said. “The GST is not doing badly. It could do better," she said.

Is "everything is coming down, not at all," she said. "We are conscious of the challenges faced by sectors... we shall ensure every sector and challenges are heard by us."