The Indian economy today has reached a point of crisis. The current GDP statistics of the nation shows a 5% growth as against the steady GDP growth of around 7% before November, 2016. The GDP or Gross Domestic Product is the value of all final goods and services produced within the boundary of a nation during one year’s period. Speaking in terms of India, this particular calendar year starts from April 1 and ends on March 31 every year. Currently, the country’s GDP is close to 3 trillion dollars. As of today, one US dollar is around 75 Indian rupees which honesty paints a sorry picture of the Indian economy as well as the Indian rupee. On August 15, 2019, Prime Minister Narendra Modi addressed the nation from the Red Fort promising that the country’s economy would soon step into the five- trillion-dollar mark. However, the reality is far from this.
The question now is what has lead to this crisis? Some causes have been highlighted. Indian economists like ex-RBI Governor Raghuram Rajan, ex-Prime Minister Manmohan Singh, etc., spoke extensively against the demonetization of November 2016. They were of the opinion that it would adversely affect the growth rate of the country, leading to a decline. Moreover, the ban on high value currencies resulted in around 60% drop in corporate investments. Usu- ally, corporate investments are made as CSR (Corporate Social Responsibility) gestures for goodwill, good public relations, etc. Here companies contribute money towards social causes, welfare schemes, etc. Secondly, this year, the country has witnessed the greatest unemployment numbers in the last 45 years. NSSO (National Sample Survey Office) and NSC (National Statistics Commission) reports of 2017-18 covered its annual surveys and it was discovered that the job scenario is extremely bleak. The job market has not been able to create jobs and institutions to absorb the large unemployed youth of the country. It is also surprising that despite having implemented programmes like Skill India, Make in India, etc., the job market remains volatile. Thirdly, the implementation of GST was supposed to make the tax system smooth and free flowing. In July 2017, GST was implemented hastily by the Government. As a result, a lot of loopholes remained, and un-clarified tax systems raised questions. Fourthly, the Budget of 2019 did not sit too well with the stock market and foreign investment companies. The LTCG (Long Term Cap- ital Gains) tax on equities is to be hiked to increase revenue prospects for the Government. Additionally, the super rich and the wealthy were also particularly unhappy with the in- crease in surcharge for those earning – Rs 2 to 5 crore at 3% and Rs 5 crore and above at 7%.
All this comes as a serious blow to the autonomy of institutions. The trend of institutional compromise by the Government has been seen for quite some time now where the Government has openly attacked the autonomy of institutions. Some examples are that of the Central Bureau of Investigation, Reserve Bank of India, National Statistics Commission, etc. As a result, senior leader- ships have either resigned or have been forced to resign. Industries have been hit the hardest in this quarter. Maruti Suzuki India Ltd has witnessed a major decline in sales.
With new variants of cars being launched one after another across several automobile companies, there has been saturation of buyers. Moreover, the same could be said for biscuit companies like Britannia and Parle whose sales have dipped significantly. The liquidity and spending capital seem to be showing a declining trend.
The circulation of fake currency has not left the economy. While the idea behind demonetization was to put an end to the circulating fake currency permanently, this has not been achieved yet. The RBI reports say that there has been a 121% rise in fake 500-rupee notes in 2018-19.
The trade war between China and USA has stirred up the world economy. A trade war happens when one country retaliates against another by raising import tariffs or placing other restrictions on the other country’s imports. In a global economy, a trade war can become very damaging to consumers and businesses of both nations. While India is dependent on Chinese and American imports, however, the procurement levels are not very high in the Indian market. Therefore, it is not posing any immediate threat as of now.
Now, a number of reasons have been cited which address the raging question of the economic slump. What could the possible steps be to revive the economy? One initiative the Government seeks to explore is bank merger. The public sector banks which are incurring losses are to be merged into the ones making profits. The qualified people in the government organizations need to be re-employed and given due in- dependence as to carry out the revival of the economy. Giving the automobile sector incentives to invest and shift to electric vehicles are two important aspects. Slowly, the transition from traditional automobiles to electric ones will be a reality in the coming years. Therefore, pre-investments in this sector could pave the way for a smooth transition. Reducing the GST tax slab of 28% that includes luxury goods, automobiles and cement, etc., might be beneficial. The lowering of rates will reduce prices and possibly encourage consumers to buy more.
While it is too early to make any sort of assumptions as of now, but if the current trend of economic slump continues, the recession of mid-2000’s could see a possible comeback.