Is Indian Economy slowing down? Here’s an analysis

Indian economy has slowed down, this headline is popping up since the last quarter. The political parties even blamed centre of creating the distraction through article 370 abragation to deviate the nation from the devastating news of falling economy.

The figures of sale and purchase has shown signs of slowdown over the past few months. It is visible in almost every sector of the Indian economy.

for 2018-19, for which the GDP growth rate was 6.8 per cent.This is the slowest growth rate of GDP since 2014-15. The previous low was 6.39 per cent in 2013-14 following which the Narendra Modi government came to power in 2014.

Recent GDP figures have only aggravated the concerns. According to Central Statistics Office, India’s GDP slowed to a five-quarter low of 6.6 per cent in October-December 2018.

How to understand this sale and purchase chain?

Consider two scenarios,

We have inherited a farmland and a house. We grow our own food, we don’t use chemical fertilizers. We don’t buy fodder for our cattle or poultry and use biogas as fuel for household energy. This means we have a self-sustained viable economy. But we are contributing nothing to country’s gross domestic product (GDP) as we are not using money.

Now, consider this.

Our neighbour works in a factory and earns a salary. They buys grocery from store, milk and butter from a dairy, clothes from a shopping mall, dines out and watch a movie on weekends, they have a domestic help and they are paying their taxes. Their activities guarantees the country’s GDP ticking upward.

Every single purchase by the them begins a chain of purchase and sale. The shop owner goes to wholesale market to buy stuff for shop. The wholesale market sources its supplies from the farmers, who purchase seeds, fertilisers, tractors, diesel and employ labourers on their fields. All are paid in money. This is repeated for every single purchase by our neighbour. This ensures flow of money that defines growth of measurable GDP.

Now this is where the problem occurs. We may be leading a self sufficient life, but when once there is shunted cash flow into economy the country’s GDP drops.

Automobile industry is facing worst situation in 20 years. The sales of cars, motorcycles, tractors have decreased significantly. Globally too its been ascertained as result of brexit.

Are the government hands tied?

Our market based economy thrives on belief of profit by private entrepreneurs. When market sulk, the government infuses money to bring back hope. But in this case the central government’s hands are tied.

In India, the government expenditure accounts for around 10 per cent in the economy. With the government sensing an economic slowdown, it increased expenditure by 19 per cent in 2017-18 and 13 per cent in 2018-19. This was the highest increase in government expenditure since 2008 financial meltdown.

To do increase expenditure again, the government needs more money. But revenue collection is moderate for April-June quarter — at Rs 4 lakh crore registering a growth of less than 1.5 per cent. To put in perspective, the gross tax collection growth for April-June 2018 was over 22 per cent. Simply put, the government does not have enough money to invest in the economy.

Why this happened?

GST is a new application in the economy had its share of glitches. However, in the last two years of GST, the government has attempted many reforms in its approach such as reducing the burden of compliances, rates and addressing concerns of the small traders. Even this had a price though it is gradually coming to settle down.

the GST’s initial teething issues impacted the revenue of the government. GST revenues have not been to the expected level. There was a gap of Rs 70,000-Rs 80,000 crore in GST revenue last fiscal.

Economists opine that this glitches will be overthrown in the coming quarters of this economic year. And in a long run implementation of GST will prove fruitful.

Ashwini Mahajan of Swadeshi Jagaran Manchester says,

“the other point is Indian economy is bank-based. In the last few years because of the NPA problem, some banks stopped lending and NPA problem was caused by sudden spurt in lendings during the UPA rule. Because of that the health of the banking system got impacted and many of the banks came to a phase where no more lendings could be made. Now NPAs have started coming down and banks can be asked to start lending”

He also opines that The RBI has been the major reason for the slowdown.  All over the world the rates of interest come down as inflation comes down, but in India it is not happening.

PM Modi spoke of need of an immediate action to boost our economy. After the meeting with the finance minister stimulus package is being expected to come as early as this weekend.

India is the largest democracy, implementation of any economical reforms will have obstacles sooner or later. The global market too is facing backlash. China’s GDP too showing a downward trend.some of the tax reforms and simplification may be soon expected.

Dr Sindhu Prashanth