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ECONOMY

TOPIC: General Studies 3:

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

Economic crisis: economy in bad shape

Context:

Growth in the quarter from July to September had slipped to 4.5%.(lowest level recorded in six years)
6.1% nominal GDP growth (real growth plus inflation) the slowest in a decade.
Fixed investment slumped to 1%, private consumption growth halved year on year, and manufacturing activity contracted by 1%.

Evidences for Slowdown:

The 12.2% decline in electricity generation( it is a good barometer of demand generated by all economic activity, not just industrial production.)
Metrics one would usually look at to assess economic activity and consumption such as Imports, merchandise exports, automobile sales, bank credit…, are indicating warning
Bank credit growth is expected to hit a 58-year low in 2019-2020.

Stagflation:

With retail inflation hitting a 40-month high of 5.54% in November and Food inflation hit 10%, vegetables (onions) and pulses.

This has led to worries about India entering a phase of stagflation, (persistent high inflation combined with high unemployment and stagnant demand in a country’s economy)

Daily Current Affairs IAS | UPSC Prelims and Mains Exam – 30th December 2019

Daily Current Affairs IAS | UPSC Prelims and Mains Exam – 30th December 2019

SRC: Wall street

Concerns:

The current slowdown is closer in nature to what was faced as far back as 1991 — the year India liberalised.
India’s current crisis is driven by both cyclical and structural factors
Problems in finance have exacerbated the slowdown.
The World Bank has said this cyclical slowdown is severe.
Demand collapsing due to reasons ranging from poor rural income growth,
The ghosts of demonetisation and a hastily implemented Goods and Services Tax (GST).

Point to be noted:

India’s growth recovered after global financial crisis 2008 without fixing the problems
Series of fortuitous developments such as lower oil prices and a boom in credit from non-banking financial companies (NBFCs) which may be partly driven by demonetisation sending more cash into the formal financial system.
With the collapse of IL&FS in late 2018,this support also ended .
Now the twin balance sheet crisis (of stressed banks and corporates with infrastructure bets) raised

Way forward:

Reserve Bank of India must cut interest rates for spurring growth out of the equation.
Increase public expenditure by investing in agriculture
raise funds for the Mahatma Gandhi National Rural Employment Guarantee Act
Investment in Skill , Education and Health

Conclusion:

This is a cyclical phenomenon and will pass like the circle of life… what goes up, must come down, but govt must also address the concerns of economy

Connecting the dots:

Do you think economy seems headed for the intensive care unit?
Do you think Demonetisation is responsible for the current slowdown?

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