Are we facing an economic shutdown ?

 India's economic shutdown: Is it worse than anticipated?

“There are a variety of growth projections from the private sector analysts many of which are perhaps significantly below government projections and I think certainly the slowdown in the economy is something that is very worrisome.”

                                                                                  -Dr. Raghuram G. Rajan

India’s deepening slowdown has left the economy on the verge of stalling. The GDP growth rate has been sliding for the last five quarters from 8% to 7% to 6.6% to 5.8% and now at 5% in the first quarter of the financial year 2019-20;the slowest pace in more than 6 years; led by a dramatic slowdown in the manufacturing sector as well.

Chief Economic Adviser Krishnamurthy Subramanian told that the slowdown was a result of both endogenous and exogenous factors, arising especially from the global headwinds due to deceleration in the developed economies.

  How is this slowdown affecting?

As a result of the slowdown, the real estate sector is also facing a crisis since the number of unsold homes have increased. When the government needed money, even the tax collection wasn’t proper and grew at a mere rate of 1.4%. 
The business sector is also suffering a lot. A slowdown in the business is affecting many aspects of the economy leading to unemployment and increased job losses. The fact that around 2.3 lakh jobs have been lost so far and the unemployment is at 45 year high has already painted a worrisome picture. Things doesn’t stop here. The rupee has also come back in the news following a depreciation in its value versus the dollar in the last month. To some extent, it is also influenced by this slowdown in the economy.

What are the main reasons being cited for this slowdown?

Indian economy is facing a slowdown which is both structural and cyclic in nature. It is being believed that the crisis has been caused by a lack of cash. India has a substantial economy that runs on cash and it was deeply affected by the disappearance of cash from the system at the time of demonetization. But this is not the only reason. Another reason which is being believed for the slowdown is the improper implementation of GST. Hardly had the economy recovered a little from the ill effects of demonetization when the GST was introduced and wasn’t even implemented properly. 
To make the conditions worse came the Liquidity crunch led by the NBFC crisis. As a result of the shortage of liquidity in the Indian market, there started arising decline in the wages due to which there was a slowdown in consumption leading to an economic slowdown. Certain factors like the angel tax and FII’s money withdrawal also played a crucial role to lead the economy on the verge of a great crisis.

The government is also aware of the gravity of the situation and it is evident from their recent pronouncements including changes in the investment norms to draw more attention towards FDI’s and moves to revive the auto sector. 
In order to boost the economy, Finance Minister Nirmala Sitharaman has also issued an ordinance to reduce the corporate tax rate to promote more investments. The moves taken by the government to recapitalize the nationalized banks to the extent of 70,000 crores and the big bank merger policy will also play a little role to solve this problem. It’s obvious that any beneficial impact from these policies will take time but time is proving itself to be a luxury which the economy is not able to afford.

Will the Indian economy soon be able to revive and come out of this great crisis?



CURATED BY : ASEEM AGARWAL (Net Impact Member)