ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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India’s Slowdown

What It Is and What Can Be Done

India’s Slowdown

Investments in industry have slowed down considerably in the recent years, as has agricultural growth. Falling levels of capacity utilisation, building up of food stocks and the state of liquidity in the economy sufficiently prove that the problem today is the lack of demand. Rural distress, rising inequality and falling real wages are driving down demand. The government’s response to the slowdown has been woefully inadequate. The biggest impediment to policymaking is not the lack of ideas, but the blinkered vision of economics. 

Even as the reports of the inventories piling up in different industries surfaced, Bimal Jalan, former Reserve Bank of India (RBI) governor, stated that this is a cyclical downturn and there will be a turnaround in one or two years (Singh 2019). The government too echoed this sentiment by refusing to admit that there is a serious problem. After the initial denial, the government responded through supply-side measures, including tax cuts worth ₹ 1.45 lakh crore for the corporates. The RBI further cut the repo rate to 5.15%. The latest evidence, however, points to a continuing downward slide of the economy. The goods and services tax (GST) collection fell to a 19-month low in September, and core sector output declined in August. The RBI also cut down the gross domestic product (GDP) growth forecast for the current fiscal year from 6.9% to 6.1%. The policy response must be based on a proper understanding of the nature of the slowdown. What then is the difference between a cyclical downturn and a slowdown? The former means that in a particular phase, the actual growth rate has momentarily fallen below a stable average rate of growth. In contrast, a slowdown represents, additionally, that the average itself has fallen in comparison to the previous periods.

The Slowdown

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Updated On : 11th Oct, 2019

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