Indian Economy Slowdown - Surfaced by Number of Entangling Factors

This article talks about factors which contributed to slowdown of Indian economy in recent past. It also discusses the steps taken by Indian government to resolve the economic slowdown and what are the expected outcomes of the government initiative.

Introduction

Factors for Economic Slowdown

Government Efforts

Anticipated Outcome

Conclusion

Introduction 

In some past quarters, Indian economy is facing crisis in terms of slowdown, inflation, unemployment, investment and market sentiment. Experts suggest that number of factors have directly or indirectly have contributed to the aggravation of situation. The contributing factors are external as well as internal. Though external factors are not under control of national leaders but the internal factors can be rectified to ease the course of national economy.

Factors for Economic Slowdown

Let us discuss those factors which are considered responsible for economic crisis according to experts.

Trade Wars

The ongoing trade wars between USA and China are not only influencing the trade and economy of themselves. Rather, it is impacting the global economy since these two countries are major economies in the world. Their trade network includes several other countries and obviously any disruption in trade flows will impact all those in the network.

Global Economic Slowdown

It is the key factor which is influencing growth of several countries including India. Since this is the time of globalization, therefore any open economy is subjected to the influence of global economic status.

High Non Performing Assets

Public sector banks (PSBs) are facing crisis of high NPAs (Non Performing assets). As the name suggests, NPAs are those assets which do not perform. It refers to those loans issued by banks which are not giving returns in terms of payment of interest or installment or the repayment of loan itself. The worthless loans became burden on lending banks. Experts suggest that relaxation in lending regulation allowed banks to lend more and resulted in piling up of huge NPAs. Due to fear, banks became conservative and private sector faced capital shortage and investors got scared. It further dried up the investments and liquidity in the market.

Demonetization

Economists argue that demonetization could not achieve its desired objectives and it sucked out the liquidity form the market.

Faulty Roll Out of GST

Though tax reforms were required from long time but blame on government is that implementation of GST was not smooth. It actually scared the investors. Other concerns about GST are high tax rates, its unpredictability and delayed refunds.

Government Policies

Last year’s tussle between RBI (Reserve Bank of India) and government raised questions over integrity of financial institutions like autonomy of RBI. GoI is accused of withholding of key data of unemployment & manufacturing growth and also adopting new methodologies to calculate statistics like GDP, Inflation etc.

Union Budget 2019

The controversial policies of Budget 2019 are also criticizing GoI and proved final trigger which increased the demand to take corrective action.

1. 
   

Government Efforts

On the demand of economists, industrialists and NITI Aayog, GoI acknowledged the economic slowdown and declared to take following action for rectification:

1. Withdrawal of enhanced surcharge on Foreign Portfolio Investments: The increased surcharge was levied by Finance Act 2019 which caused capital outflow worth USD 3 billion. The capital outflow is worrisome as it impacts value of rupee and stock market.
2. Increased surcharge will be applied to only those who are high net worth individuals who are earning INR 2 Cr per annum.
3. Violation of Corporate Social Responsibility is no longer a criminal offence. This proposal was put forward by GoI earlier which alarmed the industrial leaders but now, GoI has nullified it.
4. Government has declared an upfront capital infusion worth INR 70,000 Cr in public sector banks to overcome liquidity crunch.
5. A series of steps will be taken to promote sales in automobile sector. A ban was imposed on government departments to purchase new vehicles, has lifted now.
6. The issue of tax terrorism will be handled with tight hands so as not to allow tax authorities to misuse their discretionary powers.
7. GoI announced to increase repo rate linked loan offerings by PSBs to benefit loan seekers. This will increase their savings.
8. GoI declared an additional liquidity of INR 20,000 Cr for housing finance companies to boost them.
9. Another important declaration is regarding release of pending GST funds to MSME sector within next 30 days so as to increase the capital in their hand.
10. Delayed payments of INR 60,000 Cr by CPSEs to private sector will be expedited.
11. Government proposed to set up “Development Financial Institution” to meet infrastructure financing needs.
12. GoI also declared to withdraw angel tax on startups registered with DPIIT (Deptt. of Promotion of Industry and Internal Trade).

Anticipated Outcome

The above mentioned steps may rectify the current economic slowdown in following manner:

A positive impact on Indian economy may be visualized by return of liquidity, more capital and investments. Investors’ confidence is expected to increase. Ease of doing business is supposed to be facilitated especially among small players. Performance of MSME sector might be improved which is actually the key driver of Indian economy. If capital infusion in PSBs succeeds to address problem of NPAs, then increased lending by banks will fuel the economy again.

Conclusion

Overall, the newly adopted economic measures have potential to rejuvenate India economy. Government has given the needed support and leadership and now it is up to the corporate leadership to take the advantage and pull the economy.

See Other Posts: National Waterway 1, DNA Study of Skeleton at Rakhigarhi