Recession cloud on economy

According to the most recent data released by the National Statistical Office (NSO), the GDP growth rate in the second quarter (July-September) of the current financial year has fallen to 4.5 per cent, the lowest in the last 26 quarters. Is the level. Significantly, in the first quarter (Q1) of the current financial year, the economic growth rate was 5 percent, which was the lowest level in the last 6 years. Analysts believe that due to the slowing economic growth rate over the past few years, fears of recession on the economy have become more strong. However, many experts are also believing that the recent steps taken by the government to improve the economy can be seen soon and some improvement can be seen in the third quarter of the current year.

Recent economic statistics are disappointing

monetary policy

  • According to the data released by NSO, the total value of GDP of the country in the second quarter (Q2) of the current financial year (2019-20) is about 35.99 lakh crore as compared to 34.43 lakh crore in the first quarter (Q1) of the same year. This shows that India’s GDP growth rate is around 4.5 percent.
  • At the same time, there has also been a decrease in personal final consumption expenditure (PFCE) for this quarter. While PFCE was 9.8 percent in the same quarter of the last financial year (2018-19), it has fallen to 5.1 percent in the same quarter of the current year. It is important to note that this decline clearly exposes the crisis of confidence among ordinary citizens in the country.
  • Further, as per NSO data, Gross Fixed Capital Formation (GFCF) in Q2 of the current financial year also fell to 1.0 percent from the second quarter (11.8 percent) of the last fiscal.
    • It is to be noted that GFCF refers to the estimation of net capital expenditure on permanent capital in the government and private sector. It is believed that if a country’s GFCF is growing at a rapid pace, then the economic growth of that country will also increase rapidly. On the contrary, the decline in GFCF is a matter of concern for the policy makers of the economy.
    • For the past few years, India’s GFCF is witnessing a declining trend, which is not at all satisfactory news for India’s economic growth.


Worst performance of manufacturing

gdp growth rate

  • The manufacturing sector has been the worst performer in this quarter and has fallen to the lowest level in the last two years. As per the statistics, the manufacturing sector has grown at (-) 1 percent in Q2, compared to 6.9 percent in the second quarter (Q2) of the previous year (2018-19).
    • It is to be known that this figure was 0.6 percent in the first quarter of the current year.
  • Some analysts attribute the decline in consumer demand to the main reason for the decline in manufacturing. Also, due to this, its capacity utilization has also decreased in the last 2-3 years.
  • Recent data from the NSO is repeating the story of the Industrial Production Index (IIP). It was revealed in the IIP that the production of manufacturing sector contracted at 3.9 per cent in September.


Economic downturn

growth rate

  • Some agencies had already warned of this. SBI had stated in its GDP estimates that the GDP growth rate in the second quarter of the current year could be 4.2 percent. Also, many economists have estimated GDP growth at 4.5 percent for the July-September quarter.
  • According to statistics, all four major factors of economic growth – private consumption, private investment, public investment and exports have been badly affected.
  • It is important to note that this happened only 3 times in the last 10 quarters when the private consumption of the country saw an increase. While the fact that the Indian economy is largely dependent on the demand of the people cannot be ignored.
    • In its monetary policy report in October this year, the RBI also expressed concern over the declining trend in private consumption.
  • It may be noted that private investment in the form of Gross Permanent Capital Formation or GFCF has also come down to the lowest level in the last 29 quarters.

Due to current economic situation

economy

  • Demonetization effect
  • It is noteworthy that the effect of demonetisation or demonetisation has almost smashed the private consumption of the country. Now consumers are preferring to deposit cash or keep it in the bank instead of spending on goods. Apart from this, the demand in the rural sector has also come down, as the rural economy relies mostly on cash. According to Bangalore-based researchers, about five million people were unemployed between 2016 and 2018 after demonetisation. It may be noted that it played an important role in reducing the private consumption of the country. Apart from this, demonetisation has also affected small and medium businesses, as they also mostly work on cash basis. Actually it can be said that the current situation of the country has been greatly affected by the demonetisation, because on one hand it reduced the demand in the country and on the other hand, there was a problem in the supply of goods.
  • NPA of banks
  • It is important to note that most of the public sector banks are plagued with the problem of high NPAs ie non performing assets, resulting in problems of lending more to them. In such a situation, when banks will not give loans, it will become very challenging for the government to improve the economic situation by increasing the demand in the country. Also, the situation in the banking and non-banking sectors of the country is also not very good, although a lot of efforts are being made by the government to improve it and possibly we will see the results of these efforts soon.
  • Goods and Services Tax (GST)
  • The GST as a one-country tax is considered one of the biggest reforms of the economic sector in India, but problems with its infrastructure and implementation have negatively affected enterprises. Some experts are also of the opinion that the impact of demonetisation on small businesses is more than GST. It is known from the data released in connection with GST that the GST collection for the month of August was reduced to less than one lakh crore rupees.
  • Global factors
  • The ongoing trade war between the US and China and the global recession resulting from it can also be considered as a major reason for India’s current economic situation. There has been a continuous decline in exports globally and it has a huge impact on India as an exporter of goods.
  • Loss of employment
  • Demonetisation and GST have seen a lack of employment in the unorganized sector and new employment has not been created due to limited foreign investment. Some time ago, the NSO data underlined that unemployment has increased the most in the last 45 years. While the above factors led to a decrease in employment, quality employment could not be created, resulting in a decrease in demand.
  • Monetary policy
  • The retail inflation rate in India for the year 2013-14 was 9.4 percent. In this perspective, policy makers and the Reserve Bank of India resorted to monetary policy to reduce inflation. Strict monetary policy was emphasized over the years and repo rates were kept high under this, which reduced the market borrowing capacity as loans became expensive. As a result, inflation declined, which was 3.4 per cent for the year 2018-19, but it also weakened the monetary policy market. Keeping this in mind for some time, RBI has been continuously reducing the repo rates so that the situation can be improved.


Lack of confidence

  • Significantly, the state of the country’s economy is a reflection of the state of its society. According to economists, the functioning of any economy is the joint result of exchange and social relations between the people and institutions present in it.
  • Economists believe that at present, the fabric of trust and confidence in the Indian economy seems to be breaking.
  • Many analysts believe that the Indian economy is currently experiencing a loss of confidence. Many banks are unable to lend due to NPAs and entrepreneurs are hesitating to start new projects for fear of risk.
  • There has been deep fear and mistrust among people who act as agents of economic development. Significantly, this mistrust and fear adversely affect the economic activities in the society. This ultimately leads to stagnation or stability in the economy.
  • Some big economists of the country believe that this fear and mistrust among the people has led to the economic slowdown.

May improve in the third quarter

  • Economists believe that the growth rate of the Indian economy could possibly be seen in the third quarter (Q3) of the current financial year, as the government has taken a number of steps in recent times that will see its impact in the coming times. Can.
  • It is known that the central government had announced in August that it would release an amount of 70 thousand crores for the purpose of helping public sector banks.
  • Apart from this, the government had also withdrawn the surcharge on foreign portfolio investors.
  • There was also talk of abolishing the angel tax applicable to all startups and their investors.
  • At the same time, the government had also announced a reduction in corporate tax rate with a view to promote economic development, investment and employment generation in the GST Council meeting.
  • On the other hand, the RBI is also continuously trying to increase the demand by cutting the repo rate on its behalf. The RBI Monetary Policy Committee (MPC) is scheduled to meet next month and it is expected that the recent economic data will affect the monetary policy of RBI.


Road ahead

  • After the data comes, many economists say that the government must first stop thinking that everything is under control.
  • Global factors cannot be held responsible for the economic condition of the country, because if it were, the economy of China and Bangladesh would not grow at the rate of 6 and 7 percent respectively.
  • Experts believe that the intervention approach in a particular region can improve the economic condition of the country to some extent, but there is a need to address the deep structural issues that strengthen the economy for stable and sustainable development.

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