Wednesday 8 July 2020

Slowing of the Economy of India Since last 5 years

-Reasons for the Slowing of the Economy of India Since last 5 years 
by Harshada Shinde [MBA FA] 
Manager Fintech 
Aircrews Aviation Pvt Ltd
Prime Minister Narendra Modi cannot escape responsibility for India’s economic slowdown caused by his Acts of Omission and Commission.
1. Demonetisation: Instead of doing what was needed, Modi enforced economic quackery over 1.3 billion people. This plan to finish the black economy overnight was supposed to mop up Rs 4-5 lakh crores, but brought loose change. Demonetisation killed the informal economy, disrupted age-old economic systems and caused job losses. We are still facing its consequences and it brought no benefits at all. The government did what it does best: suppressed a report that showed corporate investments dropped by 60 per cent in the demonetisation year.
The move also scared investors about policy uncertainty in India: no one knows when Modi could come on TV and change everything, just like that. Rumours of the demonetisation of even the Rs 2,000 note keep circulating in the market.

2. Unemployment: Unemployment in India statistics has traditionally been collected, compiled and disseminated once every five years by the Ministry of Labour and Employment (MLE), primarily from sample studies conducted by the National Sample Survey Office. Other than these 5-year sample studies, India has – except since 2017 – never routinely collected monthly, quarterly or yearly nationwide employment and unemployment statistics. In 2016, Centre for Monitoring Indian Economy – a non-government entity based in Mumbai, started sampling and publishing monthly unemployment in India statistics.
India’s unemployment rate was a tad higher at 24.3% for the week ended May 24 compared to 24% in the preceding week or the average unemployment rate of 24.2% in the past eight weeks of the lockdown. The unemployment rate stood at 8.8% in March. However, the labour participation rate fell marginally to 38.7% in the week ended May 24 as against 38.8% recorded in the preceding week after increasing for three consecutive weeks, says the Centre for Monitoring Indian Economy (CMIE) in its weekly report.

3. Lesser job opportunities:Centre for Monitoring Indian Economy’s Consumer Pyramids Household Survey estimated a loss of over 10 million jobs in 2018. That was a big loss and there is no respite yet on this count. But a bigger loss on the jobs front is the loss of quality jobs.

4. Corruption:Corruption in India is an issue which affects the economy of central, state and local government agencies in many ways. Not only has it held the economy back from reaching new heights, but rampant corruption has stunted the country's development.The causes of corruption in India include excessive regulations, complicated tax and licensing systems, numerous government departments with opaque bureaucracy and discretionary powers, monopoly of government controlled institutions on certain goods and services delivery, and the lack of transparent laws and processes.

5. Lower investment: One of the biggest economic reforms India needs is disinvestment of white elephants – that are the many public sector units. Many of them keep borrowing from public sector banks to make up for their losses. This concentrates the use of capital in unproductive assets. Unlike Atal Bihari Vajpayee, Modi hasn’t made disinvestment a priority. There’s lip service, and some jugglery, but no real intent. If the Modi way is to revive PSUs rather than sell them, that hasn’t been happening either. In fact, prized PSUs have been going south.

6. Farmers suicide rate: Farmer suicides in India refers to the national catastrophe of farmers committing suicide since the 1990s, often by drinking pesticides, due to their inability to repay loans mostly taken from landlords and banks. Various reasons have been offered to explain why farmers commit suicide in India, including: floods, drought, debt, use of genetically modified seed, public health, use of lower quantity pesticides due to less investments producing a decreased yield.

7. GST: You can find nut job propaganda platforms defend demonetisation, but you will be hard-pressed to find anyone explain how the Indian economy has benefited from the Goods and Services Tax. Unlike demonetisation, this was actually a good idea. But if you want to see how good ideas are turned into nightmares, see the Modi government’s execution of the GST. Modi defined it as a Good and Simple Tax, but it has turned out to be neither. It further made life tougher for small and medium enterprises. With five tax rates and absolute compliance requirements from day one, the GST was launched in a hurry without even testing its software. Its rules were changed again and again, as if chartered accountants were super-computers. Even now, the GST needs a lot of reform.

8. Inflation: High inflation affects the economy’s allocative efficiency and obstructs growth. He also reasoned that high inflation worsens income distribution by lowering the real income of the poor. Currently, vegetable inflation is above 26 per cent and pulses inflation is over 11 per cent. Household grocery/kitchen budget was already running on thin lines when Rs 140 is increased since August on non-subsidised LPG cylinders. With an expectation of war escalation between the US and Iraq, petro-prices may increase and this may lead to a rise in inflation. When a country is facing slowdown, the government cannot afford to reduce inflation as it may impact growth further. The bigger challenge before the government is whether to start bringing reforms today or wait till the budget. But the biggest challenge is whether they will come up with economic reforms before it is too late.

9. Reduction in income: The nominal Net National Income (NNI), also known as National Income (at Current Prices) is likely to be Rs 181.10 lakh crore during 2019-20 with a growth rate of 7.6 per cent in 2019-20 as against the previous year’s growth rate of 11.3 per cent. Had this grown with the same growth rate as in the previous year, the NNI would have been Rs 187.39 lakh crore and therefore the loss stands at more than Rs 6 lakh. The impact of this slowdown can also be seen on per capita net income, which during 2019-20 is estimated at Rs 1,35,050 with a growth rate of 6.8 per cent, whereas during 2018-19 the growth rate was 10.0 per cent.

10. Non moving projects: Thanks to the ‘policy paralysis’ of the UPA-2 years, a number of infrastructure and industry projects were stalled. Land acquisition and environmental clearances were a major hurdle. Like a statesman, Modi needed to get his hands dirty to clean up the mess, get the projects going. Instead, he made it clear his priority was politics over India’s progress when he went back on amending the land acquisition law. Perhaps just because Rahul Gandhi called him “suit-boot ki sarkar”. The stalling of projects was a big reason why loans went bad, particularly in the case of the infrastructure-lending IL&FS.



Harshada Shinde  [MBA FA]
Manager Fintech
Aircrews Aviation Pvt Ltd




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