The Indian economy is definitely going downhill. The GDP growth rate has smashed and reached its lowest point in the past 26 quarters indicating a sluggish pace of growth. It is at an all-time low in 6 years. It is the fifth consecutive quarter of falling GDP growth. Yes! India’s GDP growth has come down to an alarming 4.5% in the July-September quarter. The previous low recorded being 4.3% in the quarter of January-March of 2012-13. Our GDP is decelerating. Indian economy is on its way to recession. According to recent data released, six out of eight core industries saw a contraction in output in October. These core sectors show a dip of 5.8% in October. India is no more the world’s fastest-growing economy, thanks to the consecutive quarters of falling/ dipping GDP growth rate.
Is the government concerned?
Finance Minister Nirmala Sitharaman tweeted in response to a tweet by Prime Minister Narendra Modi a day after the announcement of the decline in GDP growth rate stating that the government has taken several significant steps in structural reforms in the past months and also affirmed that responses/interventions addressing the needs of the economy will continue.
But the question that just cannot be ignored under any circumstances is that are the so-called structural reforms really helping at all? Mr. Modi’s target of $5 trillion economy is out of the question at the current growth rate. India’s position has further slipped among the world’s fastest-growing economies, losing its position to other growing economies like Vietnam and Egypt.
Before the release of the GDP growth data on 29th November, Finance Minister Nirmala Sitharaman said that growth may have come down but there is no danger of recession anytime soon. Sitharaman blamed the slowing of GDP growth in the last two years on the lagged effect of the so-called twin balance sheet crisis- stress on banks due to nonperforming assets (NPAs) one the one hand and heavily indebted corporates on the other.
Where are we heading?
Mining growth is at 0.1% in comparison to -2.2% last year. The agriculture sector growth is at 2.1% versus 4.9% last year. Government Final Consumption Expenditure has increased and is recorded at 15.64% this year in comparison to 10.90% of last year. Manufacturing growth at -1% as compared to 6.9% last year. Our fiscal deficit stands at 7.2 trillion rupees.
A single factor cannot be held responsible for this shrink in the economy. Factors like the decline in consumer spending, contraction in the manufacturing sector, a slump in export, etc. have all contributed towards this fall. The recent breakdown of the automobile sector or the escalating number of NPAs, sluggish consumer demand, failing manufacturing sector; all have a contribution to this deceleration of growth rate.
Almost every sector of the economy has shown signs of slowdown over the past few months. Recently, Private Final Consumption Expenditure by Indian households has declined significantly. Businessmen are worried because of rapidly falling consumer demand which could further lower the GDP in the coming quarter as well.
Another major constituent of India’s GDP that has been a key driver of growth since the 1991 liberalization, investment has also slackened in recent times due to various reasons. One of the reasons being lesser savings leaving lesser money for savings. Another reason being too much NPAs in the public sector banks that have led them lending lesser amounts leading to lesser investments.
Does demonetization play a role here?
Of course, the role of demonetization or the ill effect of demonetization on the Indian economy cannot be ignored. It has contributed too much to the stagnated economy. Also, GST has hampered the growth of small businesses more than demonetization. Businesses found it difficult to comply with new rules and regulations under GST. Another reason for the slowdown that very important is the global economic slowdown that is happening due to which India’s exports have been affected.
he good news amidst all the bad news of the slowdown of the economy is the rise in FDI inflows.
“Mere changes in the economic policies will not help revive the economy,” said Dr. Manmohan Singh, Former Prime Minister in the National Economy Conclave. He stated that the state of our economy is worrisome but the state of our society is even more worrying and that is a fundamental reason for the dangerous state of our economy.
The Reserve Bank of India is doing its bit by slashing interest rates despite inflation raising its head again in recent months. The government has also taken several measures regarding the same. The government instead of playing the blame game definitely needs to work harder and focus on recapitalization in the economy to face this crisis. Indian economy is undeniably facing a major crisis and major steps need to be taken in time for its redemption.