Slowdown in Indian Economy- Reasons and Possible Solutions

The GDP growth rate of India’s economy is expected to drop to 7% for fiscal year 2022-23 . The recent collapse of the automobile sector or the rising number of non-performing assets (NPAs),sluggish consumer demand or failing manufacturing sector; all have a hand in this deceleration of growth rate.

• Current outlook for the Indian economy.
• Factors affecting economic growth.
• Options for the current slowdown.

When a country’s economic growth drops, it is said that it is an economic slowdown. Economic growth is generally measured in GDP,that corresponds to the total value of goods and services produced in a country over a given period of time.

India registered GDP growth of 8.7 per cent in 2021-22 .If the National Statistical Office (NSO) predictions are accurate,India’s real GDP growth over 2022-23 is estimated to be 7 percent.While the projections are significantly lower than the government’s previous projections of 8% to 8.5%, they are higher than the Reserve Bank’s projection of 6%.

Real GDP, or GDP at Constant (2011–12) Prices, is projected to be Rs 159.71 lakh crore in 2022–23, up from the initial revised estimate of Rs 149.26 lakh crore for 2021–22.

According to the NSO’s figures, the manufacturing sector’s shrinkage caused the growth to decelerate to 4.4 percent in the October-December quarter  from 6.3% in the second quarter (Q2) of 2022-23

The industrial sector’s ongoing weakness was seen by economists as a bad surprise that reduced Q3 growth levels below their expectations.

The Economic Survey 2022–23 was presented to Parliament by Finance Minister Nirmala Sitharaman. India’s GDP growth was projected by the study to be 6.5% in FY24 in that survey,India’s economy will continue to develop at the quickest rate in the world at this rate. The projected GDP increase is consistent with past predictions made by economists. 

Reasons behind India’s economy slowdown

An economy that is slowing down is having negative effects not just in India but throughout the entire world. The primary contributing elements are listed below.

Global Slowdown:

The most significant aspect is that there is also a worldwide economic downturn, and since India is a net exporter of commodities, there has been a decline in export volumes.

In addition, the global downturn has coincided with a retreat in globalisation, which has limited FDI, or foreign direct investment, to speculative financing and the purchase of distressed assets rather than investments that support the Real Economy.

The decline in the Indian economy can therefore be attributed to continued global challenges.

Substantial reduction in demand overall

Any economy’s primary growth engine is demand. To do this, the manufacturer must boost production, which is impossible without a huge labour force. The availability of jobs increases along with the economy’s demand for other goods. But this flaw is glaringly apparent in the Indian economy, where neither demand nor employment are rising, which is what is causing the downturn there.

Rollout of GST:

Fourth, it is undeniable that the universal implementation of the Goods and Services Tax (GST) is what has caused the delay. By requiring companies to hold onto inventory until they move to the GSTN or the GST Network and comply with the many rules and regulations that are part of this levy, the GST has in fact impeded small businesses more than Demonetization. Some of the reasons that have contributed to the slowdown have been made worse by the GST implementation, it might be stated.

Some Potential remedies for the present slowdown:

Policy changes:

The government should make every effort to improve the rural employment guarantee programme in order to increase consumer demand. As an illustration, the price competition from imported, mechanically processed cashew nuts and the need for higher pay to remain competitive with the job guarantee scheme are two issues that cashew nut processing farms are currently facing. If the plan is more successful, it will result in significant welfare benefits (an improvement in the quality of spending) at just somewhat higher government expenditures relative to overall spending.

Ease of doing business:

What kind of policy framework will be required to combat these challenges? The best thing that politicians can do—and it is not a fund-based action—is to seek everywhere for ways to make conducting business easier while bearing in mind how success on this front was celebrated not too long ago.

The Finance Minister has made a modest start by promising immediate steps to shorten turnaround times at Indian ports and airports so that they comply with global best practices.

Conclusion

In the article, some of the causes behind the slow economic expansion and recession in the Indian economy were covered. To get the economy out of this jam, the federal government and economists are continuously exerting great effort. In addition, the economy will surely benefit from policies like the newly announced rescue package, corporate tax reductions, and a lower GST rate for the auto industry.

Atulya Anand