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If we look at the first quarter of India’s cycle year 2019-20, we can see that there was a significant gap in the Gross Domestic Product (GDP), which had fallen to a six-year low of around 5%. This was not encouraging for the Indian economy, the effect of which was seen in the form of a slowdown in the Indian economy.
In particular, the economy showed no indication of recovery in numerous sectors, including automobiles, manufacturing, fast-moving consumer goods, banking, and agriculture. The growth comparison of real GDP in the first quarter of the current financial year was indicated by the Central Statistics Office (CSO) in August 2019; it fell to the lowest level in six years at 5%.
No single element could be blamed for any country’s slow economic growth. However, the vicious cycle of low demand continues to be the biggest factor. This article mainly talks about India’s crippled economy, as described below.
What does slow economic growth mean?
When economic growth in a country decreases, it is called an economic slowdown. Economic growth is commonly measured in terms of GDP, which is the total value of goods and services produced in a country over a given time period. In a collapsing economy, macroeconomic growth is either slow or nonexistent. When there has been a slowdown over two consecutive quarters, we may say that the country is in recession. Recessions are generally terrible for most businesses, although they do present chances for certain enterprises and industries.
Reason Behind India’s crippled economy
Not only in India but all over the world, the adverse effect of a slowing economy is seen. Here are the main factors for the same.
1. Significant drop in total demand
Demand is the main accelerator of growth in any economy. For this, the producer needs to increase production; which cannot be done without a large labour force. When the demand for other products in the economy rises, so does the number of job opportunities. But this shortcoming is clearly visible in the Indian economy, in which neither demand is increasing, nor employment, which has become the reason for the slowdown in the Indian economy.
2. Significant drop in consumption
Consumption plays a major role in the domestic demand of India’s economy, with consumption rates at about 55-58% of GDP. In the recent past, the Indian economy has seen a sharp decline in private final consumption expenditure from 7.2% in the March quarter to 3.1% in June, which is the main reason for the slow economic growth of the Indian economy.
3. Incorrect GST implementation
According to an estimate, the Goods and Services Tax (GST) has been a key contributor to the transformation of the Indian economy and is regarded as a positive step by some economists. GST brings in about 1,35,000 crore each month in tax revenue for the Government of India. But the implementation has been fraught with complications. Traders and the ordinary population have a lot of issues in collecting GST returns, which causes money worries for them. Because of the scarcity of resources, improper GST implementation is also adding to the economic slowdown.
4. Investment decline
Several new projects were announced for the Indian economy from April to June 2019, resulting in a decline of about 79.5% in value. This is one of the biggest declines since September 2004. The investment value announced in the same quarter since September 2004 has been around Rs 71,337 crore, the lowest ever. This shows that the industries connected to India’s economic future are not in a strong position either.
5. Struggling banking sector
The Indian banking industry, the largest contributor to the Indian economy, has been struggling for a long time. Indian banks’ total non-performing assets (NPAs) are estimated to be over Rs 7.9 lakh crores. The announcement of several bank mergers in recent times may also add to the confusion in the minds of investors and depositors.
6. Agricultural collapse
Agriculture plays a significant role in the Indian economy, contributing to the country’s growth story. It is one of the main employers in India, contributing roughly 15% of the country’s GDP and employing about 55% of the population. Indian agriculture has also suffered a loss in the economy, owing to a variety of factors such as farmers not receiving adequate compensation for their crops, which has had a significant impact on the Indian economy.
Conclusion
Some of the reasons for the slow economic growth and slowdown in the Indian economy were discussed in the article. The central government and economists are continually working hard to bring the economy out of this bind. Apart from that, measures such as the recently announced rescue package, corporate tax cuts, and a reduction in the GST rate for the automobile sector will undoubtedly benefit the economy.
