Headline : Is the Indian economy slowing down?
Context of the topic
- The topic analyses the indicators suggesting slowing down of economic growth, what are its causes and related concerns.
Indicators suggesting decrease in Indian economic growth
- Decline in sales: Decline in car sales of Maruti suzuki (the largest carmaker in India), tractor sales of Mahindra and two wheeler sales of Hero MotoCorp and Honda Motorcycle (accounting for three-fourths of industry volumes).
- Decline in consumption expenditure: There has been signs of consumption slowdown both in discretionary items (such as cars and consumer durables) as well as non-discretionary items (such as food items), which is not good for a consumption-led economy.
Note: Consumption expenditure contributes almost 56 per cent of the country’s GDP.
- Slowdown in core industries: The eight core industries i.e. steel, cement, fertilisers, coal, electricity, crude oil, natural gas and refinery products, which together make up about 40 per cent of industrial production, also showed slower growth .
- Drop in growth of industrial output: The growth in industrial output itself dropped (to 1.7 per cent in January 2019) as compared to previous year (7.5 per cent in January 2018).
- Drop in GDP growth: The GDP growth rate in the first three quarters of the current financial year ending March 2019, the Central Statistics Office estimates, was 8 per cent, 7 per cent and 6.6 per cent, respectively. This clearly shows a trend of sequential slowing down.
Causes of Slowing down:
- Reasons of slowing demand for passenger vehicles :
- High interest rates
- Higher fuel prices
- Lack of credit
- However, it is being suggested that consumers have only postponed the decision to purchase vehicles and there is no permanent destruction of this demand.
- Demonetisation and introduction of Goods and Services Tax also has an adverse impact on the economy at a broad level.
- After demonetisation, bank credit also slowed down dramatically because banks had to make higher provisions for bad loans, like following prompt corrective action framework (presently by six public sector banks).
- Some other banks have voluntarily slowed down on lending, retail and businesses, as it is quite difficult to access credit.
- Thus, poor bank credit, liquidity crisis and high interest rates all created a huge drag on the economy.
- The government expects the economy to grow at 7 per cent in 2018-19, which is slower than 7.2 per cent in 2017-18.
- A slowing economy not only affects income but also employment generation.
Comparison with World economy
- In 2017, world economy grew at 3.1 per cent, which have slowed down to 3 per cent in 2018, and the outlook for 2019 suggests that it will slow down to 2.8 per cent over the next two years.
- The prospects over the coming years for both the US and the Euro zone are uninspiring because of continuous slowing down.
- China’s GDP growth rate is also expected to drop to 6 per cent in 2021 from 6.5 per cent in 2018.
- However, India seems to be the only economy expected to clock 7.5 per cent growth every year till 2021, according to the World Bank’s latest Global Economic Prospects.
- Given its potential, India can further definitely jump into the 8-10 per cent growth orbit.
- While within India, the narrative is that of an economy slowing down, but it’s growth is much better than other global economies and continues to be a profitable long-term bet for global investors. That is why India is now being a favourite spot for global investors.