Showing posts with label Pooja Parab #research paper on economic slowdown in india. Show all posts
Showing posts with label Pooja Parab #research paper on economic slowdown in india. Show all posts

Reason for the Slowing of the Economy of India Since last 5 years

Reason for the Slowing of the Economy of India Since last 5 years

Demonetisation that happened in November 2016, dealt a severe blow to consumption, leading to a vicious cycle of job loss and lower income, which led to further drop in demand (what economists call the multiplier effect). Next shock came in the form of a reform — when GST was rolled out in July 2017. This had a knock out effect on exports growth in the year of implementation because of delay in refunds to exporters.
Just as the effects of DeMo & GST were petering out, the IL&FS crisis triggered the Non Banking Financial Companies' (NBFC) credit crunch in 2018. By 2018-end, weakening global trade and GDP growth, led by US- China tariff wars, had caught up, amplifying the impact.

Since 2016-17, the monetary policy was focused on inflation control, which ensured interest rates remained hard. The combined fiscal deficit of the Centre and the state was high. And the government committed to lowering its fiscal deficit, left little wiggle room for government to increase its spending to pump-prime the economy.


With the US-China trade war, global sentiments have remained poor, making the prospects of an export led growth bleak. Add to that, a looming Brexit with its pioneer Boris Johnson now the PM of UK. All this made the economic outlook appear bleak.
Crude prices favoured Modi in the first three years of his first term, but prices have firmed up after that, putting inflationary pressure.
The NPA ratio worsened throughout the UPA-II term and is still quite high. But no sooner did the NPA ratio start improving in fiscal 2019, the NBFC stress started building up. Stress in NBFCs percolates faster than public banks, because of its greater interconnectedness to mutual funds, banks, and corporate sector.

Non-food inflation continued to surpass food inflation in the past two 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 of trade, which could make things better in the second half of this fiscal.

According to Ashu Suyash, managing director and CEO, CRISIL, "Given the crosswinds, the sops announced so far might not be enough to pitchfork growth in this fiscal to, or above, the past 14-year average of 7% per annum. Policy action looks more attuned to consumption than investment demand, which means consumption will be the first to ascend as the tide turns."

ICRA, too, has flagged concerns
Data from ICRA too shows that seven out of 16 key segments contracted in the last one year. Aditi Nayar, principal economist ICRA says, “The performance of the early economic indicators was unfavourable in June 2019, with as many as 12 of the 16 indicators displaying a deterioration in the year-on-year growth. Moreover, seven of the indicators recorded a year-on-year contraction in June 2019, which is likely to weigh upon industrial growth in June 2019.

“In addition, the quarterly trends for Q1 FY2020 compared to Q1 FY2019 reveal a broad-based deterioration in the growth trajectory. For instance, the performance of 12 of the 16 indicators weakened in Q1 FY2020 compared to Q1 FY2019, such as, auto production, Coal India Limited’s (CIL’s) output, thermal electricity generation, non-oil exports, port cargo traffic, rail freight, passengers carried by domestic airlines, as well as ATF and diesel consumption. Furthermore, auto production, non-oil exports, and ATF consumption recorded a YoY contraction in Q1 FY2020”, adds Nayar


Pooja Parab

Pooja Parab