Economic Slowdown In India

Done by Sreelakshmi M C

India is one of the world’s fastest growing large economies , sometimes being touted as a potential economic and geopolitical counterweight to China . Recently,however, its growth fell to its slowest pace in six years.

Since the turn of the century . India’s economy has grown at a rapid rate, helping transform the country between 2006 and 2016, rising incomes lifted 271 million people out of poverty meaning, the proportion of Indians still live in poverty has fallen dramatically from around 55% to 28%. Access to electricity has also improved. In 2007 just 70 % of the population had access to power. By 2017 , that grew to nearly 93%. All this developments has been supported by a booming economy , but as of late, that expansion has began run out of the steam. In the third quarter of 2019, india’s economic output grew by 4.5% – making it first time the country’s growth dipped below 5% since 2013. For contest, 4.5% growth is still much higher than that of developed countries like the USA.

Causes:

●Employment pattern

The other structural problem relates to employment. Our labour markets have many growth-impeding rigidities — a low labour force participation ratio (which means a large section of working-age population, mainly women, choose not to work); a high percentage (over 70 per cent) of rural labour ostensibly engaged in agriculture, but adding little to productivity or income; and a large informal work structure, where reportedly about 46 per cent people are self-employed and 20 per cent casually employed, making income estimation little more than guesswork for two-thirds of the labour force.

● Foreign portfolio investors pulling out of investment in India

These investors have been on a selling spree especially after the budget presentation that called for taxing foreign investors that operate using ‘trust’ structure. The investors had pulled out of 2,881 crore under INR during just 2 sessions of august.

● Farmer’s empty pockets

Non – food inflation continued to surpass food inflation in the past 2 years . Amounting to income transfers from rural to urban areas.

Farm income could get a leg up from the government’s income transfer scheme, and a rise in food prices would boost the terms which could make things better in the coming years

● Tight monetary and fiscal policies

Monetary policy was focused on inflation control, which ensured interest rates remained hard.

The combined fiscal deficit of the centre and state was high and the government committed to Lowering its fiscal deficit ,it left little wiggle room for government to increase its spending to pump-prime the economy.

● The US China trade war

The US CHINA trade war is the leading dampener in India’s growth story.

In addition to this, the timing of some of the policy changes , the goods and services tax, demonetisation, measures to curb corruption , and the move to flexible inflation targeting led to a combination of lower inflation, higher real rates , and lower nominal growth

The Indian economy has great potential, the current slowdown must be dealt with a bottom-up strategy, which may include boosting agriculture , food processing , tourism, MSME ,automobiles and pharmaceuticals