Pre-cum-Mains GS Foundation Program for UPSC 2026 | Starting from 14th Nov. 2024 Click Here for more information
Context:
- Causes responsible for the slowdown of Indian economy
What are the issues?
- There is a slowdown in Indian economy
- The GDP has lost momentum
- The reasons of slowdown are being explained as beyond the government’s control; that are deficient rains, the sluggish world economy, recent demonetization in the economy and Goods and Services Tax (GST)
- Both the GST and the demonetization failed to bring change in the numbers
What are the four engines of the economy?
- Exports, government investments, private consumption, and private investments
What has happened to the four engines?
- During the United Progressive Alliance’s (UPA) tenure – the four engines powered the economy
- Growth in government investments and private consumption remained on the track until it has started slowing down in the quarter ending June 2017
- Exports and private investments have lost momentum
What is the background?
- Government investments and private consumption depend on how well the economy is doing
- As incomes improve, private spending and tax collections pick up.
- The 2008 financial crisis was a big blow to the export business including India
- Recovery in the global economy has lifted exports of most Asian countries
- Indian export remained stagnated after the crisis
- The overvalued rupee eroded the competitiveness of Indian export
What are the challenges?
- The steps taken for improving the ease of doing business and the foreign investments regime have proved insufficient in restarting the private investments cycle
- The share of investments in GDP GDP has declined steadily for the past five years.
- New jobs are not created
- Without new jobs, consumption will only grow up to a point
- India’s economic future can improve significantly with investments-led growth
Why are investments on hold?
- The returns-risk projections of projects are not favourable
- Companies are not convinced that new factories will be sufficiently profitable
- The government is politically sensitive
- The government has set a low target for consumer price inflation
- The government is unable to progress on land and labour reforms
- Government’s policy on the bad bank has impacted small companies in raising finance
- The environment of constant shocks and unanticipated policy changes is hurting investment sentiment in the economy
Whom to be made responsible?
- There is no policy paralysis
- Decision-making is speedy which demonstrates the growing disconnect between policy tools and objectives
- The demonetization has dragged the slowing down economy
- The complicated design of the GST may have added to the vulnerabilities of the informal sector