Slowdown in India’s Economic Growth in 2019-20 : Explaining in that Context the Decline in the Manufacturing Sector Growth Rate

In 2019-20, the real gross value added (GVA) of Indian manufacturing declined by about three per cent over the previous year, which is rare because a negative growth rate in manufacturing in India has not occurred in the past 20 years. The growth rate of the Indian economy in 2019-20 was about four per cent, markedly below the average growth rate in the preceding five years (about seven per cent per annum). The slowdown in India’s economic growth in 2019-20 is attributable in the main to the sharp decline in growth rate and negative growth in the real GVA of Indian manufacturing in 2019-20. The negative growth in real GVA of Indian manufacturing by about three per cent in 2019-20 was associated with negative growth in total factor productivity by about six to seven per cent. About 37 per cent of the fall in real GVA of Indian manufacturing in 2019-20 is traceable to the decline in real GVA of the coke and petroleum products industry. The paper investigates why did the growth rate of real GVA of Indian manufacturing fall sharply and turned negative in 2019-20. India’s merchandise exports in current US dollars, excluding petroleum products and gems and jewellery, grew at the average annual rate of 8.2 per cent during 2016-17 to 2018-19 and declined by 2.9 per cent in 2019-20, which seems to be one of the factors responsible for the significant negative growth turnaround in Indian manufacturing in 2019-20. But there are possibly several other causes. In 2019-20, the increase in the prices of minerals far exceeded the increase in the prices of products of the manufacturing industries that are significantly dependent on minerals, such as basic metals. The use of single deflation for the derivation of real value-added of these industries, as is being done in India’s national accounts, might have caused an underestimation of real GVA growth in these industries for 2019-20. In the case of the coke and petroleum products industry too, there are grounds to believe that if the double-deflation procedure is applied with separate deflation of domestic sales and exports, the estimates of real GVA will probably not show a large decline in 2019-20