Economic slowdown occurs when the rate of growth in the GDP of an economy slows down as compared to the previous years. The GDP growth rate of India has slipped down to 5% in 2019. India is facing a sharp economic downturn due to some of these major reasons:
1.) Disruptions, new reforms: Demonetization in 2016 lead to a vicious cycle of job loss and lower income. Next was GST in 2017, it effected the export growth in the year of implementation due to delay in refunds to exporters. After all this the NBFC credit crunch occurred in 2018. All this led to weakening the global trade and affected the GDP growth.
2.) Monetary and fiscal policies: Since 2016-17 the monetary policies were focused on inflation control, due to which interest rate remained high. The fiscal deficit was high. Government was trying to cut the fiscal deficit and due to this the Government was left with little funds to spend on the economy.
3.) Global crisis: With the US-China trade war, global sentiments have remained poor, making the prospects of an export led growth bleak. Crude prices favored India form 2014-2017, but prices have firmed up after that, putting inflationary pressure.
4.) Financial sector dealing with NPAs: The ratio of NPAs was quite high till 2018. However, no sooner did the NPA proportion start improving in financial 2019 the NBFC stress fired structure up. Worry in NBFCs permeates quicker than public banks, in view of its more noteworthy interconnectedness to mutual funds, banks, and corporate sector.
This slowdown is visible in almost every sector of the country. Auto sector is facing its worst crisis in about 20 years, reports says that approx. 2.30 lacs jobs have been lost in auto sector. It has also affected the real estate which has links with various other industry. The FMCG sector is also growing at a slower pace, they have reported decline in volume growth in 2019.
To improve its economy India should focus on
- Upcoming innovative sectors such as renewable energy and ways to promote it. The government should promote Electric Vehicles using favorable policies compared to conventional automobiles.
- Look at all sectors (except healthcare and education) as a business opportunity. Indian government has done a good job in liberalizing many sectors. But it is still very slow compared to other countries.
- The Reserve Bank needs to cut interest rates for banks, thereby making borrowing cheaper for the industry and spurring investment.
- More certainty in the business environment is required. Businesses should be without shocks like demonetization. In fact, after demonetization shock, there is an environment of uncertainty in the economy. This stops the Private sector short of announcing the new projects. There should be an environment of certainty that no such disruptive moves would rock the economy in the near term.