India’s Economic Slowdown

Economy

Topic: General Studies 3:

• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

India’s Economic Slowdown

Context

The economy grew at 4.7 per cent in the October-December quarter, down from the revised estimate of 5.1 per cent in the second quarter

However, the situation is much worse than what the headline numbers suggest. 

• At the aggregate level, gross value added grew by 4.5% in the third quarter, down from 4.8% in the previous quarter.
• But excluding public administration, defence and other services, which largely connote government spending, value added by the rest of the economy grew by a mere 3.7% in the third quarter, down from 5.2% in the same quarter last year
• Growth thus continues to be propped up by higher government spending.
• Manufacturing sector has seen contraction (negative growth) for two consecutive quarters
• For the full year, manufacturing sector is expected to grow barely at 1%, down from 5.7% in the last year.
• Construction activity also slowed down reflecting the continued dismal performance of the real estate sector.
• Gross fixed capital formation, which represents investment in the economy, has now contracted for two straight quarters
• NSO now expects investments to contract by 0.6% in 2019-20, after growing by 9.8 per cent in the previous year, 

Future Bright Prospects

• Gross value added is expected to pick up to 5 per cent in the fourth quarter, up from 4.5 per cent in the third quarte
• Data of the eight core sectors have grown for two consecutive months.
• National statistics office thus believes that the economy has bottomed out and an upward trend is likely in coming quarters
• Capital investments announced by government (National Infrastructure Pipeline) will kickstart private sector and start yielding results in medium to long term
• The structural changes brought in economy through Insolvency & Bankruptcy code, GST and JAM trinity (Financial Inclusion) will enable formalisation of the economy in the long run. 

Downside risks

• The Centre’s revenues may well fall short of the revised estimates. This may impinge on its ability to maintain its spending at current levels in the fourth quarter.
• The full impact of the coronavirus is yet to play out. Economic activity in February and March is likely to be impacted directly and indirectly, depending on the duration and intensity of its spread.
• Disruptions in supply chains and lower external demand due to trade tensions of USA with China & others, may further add to domestic issues.

Conclusion

One of the reasons for current slowdown has been the weak demand in the country especially from rural sector. Thus, government should try to increase disposable incomes (through schemes like MGNREGA) in the hands of people which will revive the growth in economy.

Connecting the dots

• Impact of Coronavirus on world markets
• Multilateral trade deals during weak domestic economic situation – prospects & dangers