India Faces a New Hurdle: An Economic Slowdown
As a majority of the world’s leading economies are anticipating a recession, India has not been spared. The Indian economy is also in shatters for the last few years. The recent Government estimates have indicated a growth rate at as low as 5% that is the weakest since 2009. Indian Government led by Mr. Modi has many local challenges of its own, along with a slowing down economy. However, reviving the economy seems to be not getting its due attention by the popular right-wing Government.
The signs
It was a few years ago when the Indian economy was anticipating double-digit growth. However, the naked reality of the state of the Indian economy appeared, when most of the Indian organizations estimated this financial year’s growth to be tamed at 5%; some have even gone below 5%.
The construction and infrastructure sector is reeling under tremendous pressure. The automobile sector has also been marred due to low demand. A significant part of Indian MSMEs has been gone out of business. Almost all the core sectors of the Indian economy are slowing down beyond expectations.
Low demand and low consumption
One of the biggest factors for this state of the Indian economy is weakened demand from the masses. Two major events in India, the Demonetization and implementation of a uniform tax regime (GST), have created a demand gap in the economy. The cumbersome process of GST has led to the shutting down of many small scale industries. Demonetization has created a short-term liquidity shortage in late 2016 that may have some effects even now.
Sick PSUs
India’s a major part of budgetary allocation goes for the revival of sickened PSUs. Almost all the PSUs in India are running at a high cost with no profit for years. The worst is the Public Sector Banks. They have a huge burden of bad loans that have been stretched for years. Some wilful defaulters have even been absconded from the country. The allocation of regular packages to PSUs costs the Indian economy dearly.
Global slowdown
In a globalized world, no country is safe from cascading effects of Sino- American trade war. The global slowdown has impacted India’s exports, and it has not been successful in taking the space created after the trade conflicts between China and the U.S. The erratic oil price also has impacted the Indian inflation rate at home.
The way out
The Indian Government is trying to justify the slow growth showing the struggles of the Chinese economy. However, even the Chinese economy is running at 6% growth. The Indian Government needs to take some immediate steps for pushing demand to a reasonable level. It needs to spend more on infrastructure creation. It has recently cut corporate tax by a significant point; more steps on this similar note should be taken to boost the confidence of the corporate sector. The Indian Central bank (RBI) is following an expansive view followed by multiple rate cuts, and the Government should take advantage of this period to bring some more reforms in Indian tax code.
