Explained: Is the Indian economy slowing down?

Topics Covered:

1. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Explained: Is the Indian economy slowing down?

What to study?

For Prelims and Mains: Slowing economy- concerns, causes and what needs to be done?

Signs to suggest that the Indian economy slowing down:

1. Sales of Maruti Suzuki, the largest carmaker, and Tractor sales for Mahindra have declined in December 2018. Two-wheeler sales too started crawling since December.
2. There are signs of a consumption slowdown spreading to non-discretionary items such as food items. Thus far, it was feared to have impacted only discretionary expenditure – in products such as cars and consumer durables.
3. Macro indicators too aren’t presenting any encouraging signs either. First, eight core segments — steel, cement, fertilisers, coal, electricity, crude oil, natural gas and refinery products, which together make up about 40% of industrial production – grew at 1.8 per cent in January this year, compared with 2.8 per cent in the previous month.
4. The growth in industrial output itself dropped to 1.7% in January 2019 against a growth of 2.6% in December 2018. In the corresponding month i.e. January 2018, it had grown 7.5%.
5. The GDP growth rate in the first three quarters (April-June 2018, July-September 2018 and October-December 2018) 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 and these numbers corroborate the signals that have been visible on the ground.

Why is it slowing down?

1. The demand for passenger vehicles slowed down during the second half (beginning September 2018) of this financial year because of many reasons — high interest rates, higher fuel prices and lack of credit. However, many in the industry say consumers have only postponed the decision to purchase vehicles, suggesting that there is no permanent destruction of this demand.
2. At a very broad level, demonetisation — a radical policy decision — and introduction of Goods and Services Tax — a structural reform — naturally had an adverse impact on the economy.
3. Over the last two years, bank credit slowed down dramatically because banks had to make higher provisions for bad loans. With six public sector banks under the central bank’s prompt corrective action framework, and some others voluntarily having pressed the pause button on lending, retail and businesses found it quite difficult to access credit.
4. Poor bank credit, liquidity crisis and high interest rates all created a huge drag on the economy.

Concerns:

A slowing economy always hurts. It affects income of people, and does not create jobs.

Sources: ie.