“India’s economy is in stagflation, with notably weaker growth but inflation is still stubbornly high,”
The official data released by the National Statistics Office (NSO) confirm that. Weaker consumer demand and slowing private investments are the two key factors behind the Indian Economy Slow Down.
Recently, Prime Minister Narendra Modi aimed for a 5 trillion dollar economy by 2024. To attain this target, our GDP needs to grow steadily over the next few years. Experts say it is possible however the biggest challenge is to attain this type of ambitious growth in an environment-friendly way in our present era of the climate crisis.
India’s economic growth hit a six-year low of 5 percent in the first quarter of the current fiscal [Q1 2020]. It is estimated that the growth may further slip to below 5 percent in the second quarter and overall the economy is likely to register a less than 5 percent expansion for the full fiscal.
S&P Global Ratings warned in December it may downgrade India’s sovereign ratings if economic growth doesn’t recover. Moody’s Investors Service downgraded India’s rating outlook to ‘negative’ from ‘stable’, citing rising risks that economic growth would be materially lower than in the past as the government struggles to rein in the fiscal deficit. The country’s sovereign ratings were affirmed at ‘Baa2’, the second-lowest investment grade.
India’s statistics may have been painting a far rosier picture of economic growth than the more modest reality of the past decade. Former chief economic advisor Arvind Subramanian accused that GDP is overestimated by 2.5% during 2011-2017.
Government support seems to be waning now, with ministries asked to cap spending in the final quarter of the financial year at 25% of the amount budgeted rather than 33% allowed earlier. This new rule will hamstring sectors including agriculture, aviation, and coal, where not even half of annual targets have been disbursed.
Eight core sectors have registered a negative growth of 2.1% in July 2019, compared to 7.3% in the corresponding month last year.
The manufacturing sector showed a growth of 0.6% in Q1 of FY2020 compared to 12.1% growth in Q1 of FY2019. Whereas, the agriculture sector showed a growth of 2% in Q1 of FY2020 compared to 5.1% growth in Q1 of FY 2019. There are sharp slowdowns across auto-segments in August. Maruti, Tata, Eicher sales all fell over by 30%.
Our government did not put India’s economy in priority. While our social media and newsfeed are filled with Hindu-Muslim riots or India-Pakistan controversies. It seems that the Government talking about CAA, NRC, and NPR to move people’s attention from the economy.
REASONS BEHIND ECONOMIC DOWNTURN:
- DEMONETIZATION- According to THE HINDU, Corporate investments fell over by 60% in the demonetization year to lowest in this decade which impacted the economy.
- GOODS & SERVICES TAX- It simplifies the tax system but it’s very complicated for unsophisticated people. According to the World Bank, it is the most complex and second-highest tax rate in the world.
- BUDGET 2019- It did not appeal to the investors, economists and financial intellectuals which was reflected by the stock market performance. Foreign investors pull out Rs 2,881 Crores from Indian markets in just two trading sessions in August.
- UNEMPLOYMENT- The real rural wage growth (adjusted by CPI-Rural laborers) has plunged from 14.6% in FY2014 to merely 1.1% in 1.1% in FY2019. The below graph shows unemployment growth. India is used to having unemployment rates close to 2%-3% historically. Currently, we are seeing unemployment rates close to 8% and even higher than that. This is nearly a four-fold increase in the unemployment rate
- Other reasons are the scams and bank frauds which rose to 74% to Rs 71543 Cr in FY2019 according to the RBI report, the Government writing off 2.4 Lakh Crores of loans in 3 years said by the parliament, the lack of intellectual and learned peoples in the government.
HOW TO OVERCOME ECONOMIC DOWNTURN:
The government should give auto sector incentives to invest and shift to electric vehicles, reduce the G.S.T slab rates, improve credit flow to both consumer and industry, reduce real interest rates as the cost of capital has to come down, change the credit culture in public sector banks.
No demand – No Investment: Vicious Circle operates and to stop this cycle operating the Government has to ensure that more cash is available in the hands of lower-income people which will boost up the demand, which in turn boosts up the economy.