THE GREAT SLOWDOWN (PART 1)
An economy flourishes when there is rotation of money. Higher the levels of production, consumption and investment, better the economy. But when this cycle faces a small interruption, it results in a chain reaction.
For example, Demonetisation resulted in cash crunch. The rural areas, especially the farmers were hit hard. The sale of tractors decreased as there was no money left in the hands of farmers, the main customers. As mentioned by HUL, the demand for Rs.5 biscuit packets plunged by 10%. Production levels contracted because of low demand. The employees were not paid salaries. Many of them lost their jobs. There was no money to spend and hence the consumption levels decreased. All this slowed down the economic cycle.
Economic slowdown occurs when the rate of growth of GDP declines. It is usually cyclical in developing countries like India but this time it seems to be both cyclical and structural.
GDP growth rate
2017-18 : 7.2%
2018-19 : 6.8%
2019-20 : Q1 - 5%
Q2 - 4.5%
The data clearly shows the slowdown.
The problem is not being able to find the problem.
India aims to achieve the $5 trillion economy by 2024 but as said by Gita Gopinath, the real growth rate of India should be 8-9% to achieve it and that's not really possible in the current scenario.
Now let's look at what triggered this slowdown.
• Demonetisation and GST are said to be the two main causes for this crisis(some economists deny this). The example in first para shows the effect of DeMo. Before the economy could self-start the cycle and recover from the effects of DeMo, GST was introduced.
• GST as such is not a bad idea but as Manmohan Singh said, the faulty implementation of GST is one of the major causes of slowdown.
• Financial crisis : Companies borrowed huge loans from Banks and NBFCs but had defaulted payments. This resulted in financial crisis. The NPAs(non-performing assets) of banks increased. Banks themselves were running out of cash. So their ability to lend smaller loans also decreased.
• Real Estate market has slumped due to various reasons. One such reason is the decrease in demand. A majority of people in India buy houses by getting loans. When loan sanctions became harder, demand for houses were beginning to tail off. There are more than 20 industries right from cement to electronics who benefit when a person buys a home and all of them are affected.
There are various other international and domestic policies that triggered this crisis. As said before, if we were to figure out the exact reasons, half the problem is solved. But even the great economists are wondering why the stock market is going up when the economy is slowing down.
This is just half the story. Let's look at how we can kickstart the economy in the next post.
Stay tuned.
Do share and SUBSCRIBE if you find this informative.
Data source : Economictimes, PRS report summary of Economic Survey 2018-19.
For example, Demonetisation resulted in cash crunch. The rural areas, especially the farmers were hit hard. The sale of tractors decreased as there was no money left in the hands of farmers, the main customers. As mentioned by HUL, the demand for Rs.5 biscuit packets plunged by 10%. Production levels contracted because of low demand. The employees were not paid salaries. Many of them lost their jobs. There was no money to spend and hence the consumption levels decreased. All this slowed down the economic cycle.
Economic slowdown occurs when the rate of growth of GDP declines. It is usually cyclical in developing countries like India but this time it seems to be both cyclical and structural.
GDP growth rate
2017-18 : 7.2%
2018-19 : 6.8%
2019-20 : Q1 - 5%
Q2 - 4.5%
The data clearly shows the slowdown.
The problem is not being able to find the problem.
India aims to achieve the $5 trillion economy by 2024 but as said by Gita Gopinath, the real growth rate of India should be 8-9% to achieve it and that's not really possible in the current scenario.
Now let's look at what triggered this slowdown.
• Demonetisation and GST are said to be the two main causes for this crisis(some economists deny this). The example in first para shows the effect of DeMo. Before the economy could self-start the cycle and recover from the effects of DeMo, GST was introduced.
• GST as such is not a bad idea but as Manmohan Singh said, the faulty implementation of GST is one of the major causes of slowdown.
• Financial crisis : Companies borrowed huge loans from Banks and NBFCs but had defaulted payments. This resulted in financial crisis. The NPAs(non-performing assets) of banks increased. Banks themselves were running out of cash. So their ability to lend smaller loans also decreased.
• Real Estate market has slumped due to various reasons. One such reason is the decrease in demand. A majority of people in India buy houses by getting loans. When loan sanctions became harder, demand for houses were beginning to tail off. There are more than 20 industries right from cement to electronics who benefit when a person buys a home and all of them are affected.
There are various other international and domestic policies that triggered this crisis. As said before, if we were to figure out the exact reasons, half the problem is solved. But even the great economists are wondering why the stock market is going up when the economy is slowing down.
This is just half the story. Let's look at how we can kickstart the economy in the next post.
Stay tuned.
Do share and SUBSCRIBE if you find this informative.
Data source : Economictimes, PRS report summary of Economic Survey 2018-19.
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