Slowing of GDP growth due to lower govt spending, MCC: RBI Governor

Sub: Eco

Sec: Monetary Policy

Context:

RBI Governor said that the slowing of India’s economic growth to a 15-month low of 6.7% in the April-June quarter was due to lower government spending in the wake of the enforcement of the model code of conduct for the recent Lok Sabha polls.

Projection vs real growth:

The RBI had projected a growth rate of 1% for the April-June quarter of this fiscal.
However, the first advance estimation data released by the National Statistical Office showed the growth rate at 7%.
According to data, Government expenditure and agriculture are the only components that had a growth rate of less than 7%.
Agriculture sector recorded a minimal growth rate of around 2% in the April to June quarter.

Reasons for slowing of Growth rate:

Government expenditure was low during the first quarter due to elections (April to June).
Operation of model code of conduct (MCC) by the Election Commission led to limited spending by central and state governments.

MCC Provisions on government spending:

No fresh sanctions for governmental schemes should be made.
Review and processing of beneficiary-oriented schemes, even if ongoing, should be stopped till completion of elections.
No fresh release of funds on welfare schemes and works should be made in any part of the state where election is in progress without prior permission of the Election Commission.
This includes works under the Member of Parliament (including Rajya Sabha members) Local Area Development fund or MLAs / MLCs Local Area Development Fund.