The ongoing economic slowdown in India has been a cause of concern since the past few months. With the Crisil lowering its gross domestic prediction to 6.9%, lower by 20 basis points for this fiscal the indications are strong that the chances of the economy picking up pace in the upcoming few months is very low. Incidentally, this projection is lower than the 14-year average of 7%.
Slowdown Driven By West And North Zones
Usually, Maharashtra and Uttar Pradesh are the two states that contribute majorly to the country’s economy. However, despite being the richest state in India, Maharashtra and the most populated state in the country Uttar Pradesh are the worst-hit states by the ongoing economic slowdown in India.
A report by market research firm, Nielsen India titled “India FMCG Growth Snapshot” says Madhya Pradesh, Haryana, and Assam are some of the states where the consumption is predicted to plummet in 2019. The forecast says that the Fast Moving Consumer Goods (FMCG) sector will be most hit by this slowdown.
The Head of Retail Measurement Services, Nielsen South Asia, Sunil Khiani said, “Taking a regional lens – the slowdown is driven by north and west zones, where growth has come down to single-digit in Q2. Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra, and Assam are leading the slowdown.”
Reasons For Economic Slowdown In India
Multiple reasons have contributed to a slowdown in the Indian economy. Changing hands of the power at the Center contributed towards many revolutionary decisions that have directly or indirectly made an impact on the economy. Some major reforms or decisions like demonetization or introduction of GST gave a big jerk to the economy.
Demonetization done in November 2016 gave a major jolt to consumption as it initiated a vicious cycle of job loss and low income. Similarly, Modi government launched GST in July 2017 that knocked the export growth rate as there was a delay in refunding the amount to exporters. The IL & FS crisis further tightened the grip and by the end of 2018, the GDP and global trade weakening due to a tariff war between the US and China further put more pressure on the economy.
Tight fiscal and monetary policies, fluctuation in crude prices in the last couple of years, looming Brexit issue, drop in NPA ratio which continues to drop further, and non-food inflation all have contributed towards this decline in the economy.
Will Things Improve For India?
The government’s income transfer scheme could give a boost to farm income. Similarly, the rise in food prices will also improve the terms of the trade which possibly could make things better in the second half of fiscal 2019. The Chairman of mortgage giant HDFC, Deepak Parekh said that the slowdown in the Indian economy is temporary and will pick up at the start of the festive season.
While talking about the underlining drop in consumption, Parekh said, “While there has been an across-the-board slowdown in consumption, given the inherent demand and low penetration levels, I do believe this is temporary in nature.” He further added, “ The demand for commercial real estate has been buoyant across the top eight cities and is coming from the IT sector, e-commerce, professional as well as services sectors.”
The Vice-Chairman of Niti Aayog, Rajiv Kumar and Power Secretary, Subhash C Garg are of the opinion that the recent budget has the potential to revive the economy in the not-too-distant future. Garg said that things are accelerating as the slowdown is temporary, driven by some sector-specific events.
He further added that the slowdown will last the latest until the third quarter of this financial year and improvement will start showing from next year.