Prime Minister Narendra Modi and Union Finance Minister Nirmala Sitharaman have a tough task of reviving Indian economy and put it back on the path of fast growth. (Photo: PTI file)

Presenting the Economic Survey in Parliament in July 2019, the Narendra Modi government had estimated that the GDP (gross domestic product) growth rate for 2019-20 to be 7 per cent. Six months later the government has lowered the estimated GDP growth rate for the year to 5 per cent.

It is still good news given that the GDP growth rate is on downward spiral for six consecutive quarters, finishing at 4.5 per cent in the September 2019 quarter. Pegging overall advanced GDP growth rate at 5 per cent also means that the economy will reverse the downward growth trend in the third and final quarters of 2019-20. The official estimate is that the second half of the fiscal would grow at 5.25 per cent.

However, there are some key facts that do not allay fears expressed by experts, including last year's Nobel Prize winner Abhijit Banerjee. He said the Indian economy is very close to a big and long recession if urgent corrective steps are not taken.

Private consumption has been the villain for battered GDP growth rate in India. Private consumption contributes about 60 per cent to the GDP. It is growing at 5.7 per cent in 2019-20, much below the rate for previous financial year when it grew at 8.1 per cent. The GDP growth rate then was 6.8 per cent against first advance estimate of 7.2 per cent.

To boost consumption, the government increased its expenditure - which is yet another key component of GDP calculation. Against last year's 9.2 per cent, the government planned to increase its expenditure by 10.5 per cent. However, recent developments - lower than expected tax collection and US-Iran tension suddenly pushing oil prices - are likely to put a curb on government expenditure to meet the fiscal deficit target.

Manufacturing is in bad shape, registering 15-year low in 2019-20 at 2 per cent estimated growth, disturbingly low from 2018-19 figures of 6.9 per cent. Construction is lagging at 3.2 per cent this year compared to 8.7 per cent last year.

Investment by businesses, which is a key driver of GDP, is estimated to grow at 1 per cent. The corresponding figure for 2018-19 was 10 per cent. Declining rate of investment by businesses means less job opportunities in the markets, and hence less money in people's pockets. They can't buy whatever products manufacturing sector is producing. This keeps the cyclic downfall in motion.

Agriculture is no better with 2.8 per cent in 2019-20 against 2.9 per cent the previous year. Kharif season was expected to uplift rural India's earning, and hence consumption, but less than expected produce not only dashed this hope, it also pushed up food inflation with prices of onions and other daily consumption items flying north.

But the government estimates that things improved in the quarter ending December 2019 and continues to improve in the final quarter of 2019-20. Second advanced estimates will be released post-Budget, which will be presented on February 1. The GDP growth figure of 5 per cent for 2019-20 may change in the second estimates, to be released by National Statistical Office (NSO) - for better if the government's estimation is based on correct reading of indicators.