{"id":51283,"date":"2019-08-16T19:00:29","date_gmt":"2019-08-16T13:30:29","guid":{"rendered":"https:\/\/blogadmin.forumias.com\/?p=51283"},"modified":"2019-08-16T16:13:50","modified_gmt":"2019-08-16T10:43:50","slug":"7-pm-what-happened-to-economy-during-the-first-term-of-modi-16th-august-2019","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/7-pm-what-happened-to-economy-during-the-first-term-of-modi-16th-august-2019\/","title":{"rendered":"7 PM | What happened to economy during the first term of Modi | 16th August, 2019"},"content":{"rendered":"\n<p><strong>Context:<\/strong>\nslowing down of economy and its impact<\/p>\n\n\n\n<p><strong>Present\neconomic situation of India:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The demand for passenger vehicles slowed\ndown during the second half (beginning September 2018) of this financial year\nbecause of many reasons-high interest rates, higher fuel prices and lack of\ncredit. <\/li><li>At a very broad level, demonetization-a\nradical policy decision-and introduction of Goods and Services Tax-a structural\nreform-naturally had an adverse impact on the economy.<\/li><li>Over the last two years, bank credit\nslowed down dramatically because banks had to make higher provisions for bad\nloans. With six public sector banks under the central bank\u2019s prompt corrective\naction framework.<\/li><li>Poor bank credit, liquidity crisis and\nhigh interest rates all created a huge drag on the economy.<\/li><\/ul>\n\n\n\n<p><strong>Reasons\nfor slowdown of economy:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Global\noutlook:<\/strong>\nThe advanced economies are mainly feeling the pinch of high fiscal deficit,\nworsening unemployment scenarios and deteriorating output growth outlook. The\nglobal growth is also likely to face the downward risks due to current\nuncertainties<\/li><li><strong>Unemployment\npersists throughout the globe:<\/strong> Estimates show that more than\n210 million people across the globe are unemployed marking an increase of more than\n30 million since 2010, three-fourths of which has occurred in the advanced\neconomies. <\/li><li>In emerging economies, high youth\nunemployment is starting to gather concern. It may be mentioned that the\nunemployment situation is more serious in countries in the Middle East, North\nAfrica, European and Developed economies as compared to the South and East\nAsian countries<\/li><li><strong>US\ntrade deficit<\/strong>: The escalating high trade deficit values for US\ntrade with the world although did decline visibly with the onset of the global\neconomic crisis, but has regained shortly, to high levels, though still below\nthe pre-Lehman figures.<\/li><li>Due to rising trade deficit USA taking\nthe measures of tariffs and escalated to trade war, which led rising\nprotectionism throughout the world<\/li><li><strong>Crisis\nin agriculture<\/strong>: There is a crisis\nin agriculture that runs deep. GDP per capita in the agricultural sector has\nbeen less than one-tenth GDP per capita in the non-agricultural sector for 25\nyears. Growth in output is monsoon-dependent. Employment creation is negligible.\nThe outcome is rural distress.<\/li><li><strong>De-industrialization:<\/strong> The share of manufacturing in GDP and employment is\nlower than it was 25 years ago. India\u2019s share in industrial production and\nmanufactured exports in the world economy has declined steadily. The beginnings\nof de-industrialization are discernible<\/li><li><strong>Investment:<\/strong> Investment (gross\nfixed capital formation) as a proportion of GDP dropped from 31.8% in 2011-12\nto 28.3% in 2013-14 and from 30.4% in 2014-15 to 27.1% in 2016-17, so that the\ninvestment-GDP ratio dropped by 3.3 percentage points in the last three years.<\/li><li><strong>Exports:<\/strong> &nbsp;Merchandise exports as a proportion of GDP were in the range\n16-17% during 2011\/12-2013\/14 but dropped from 15.2% in 2014-15 to 12.2% in\n2016-17 (by 3 percentage points). The US dollar value of merchandise exports\nstagnated during the last three years.<\/li><\/ul>\n\n\n\n<p><strong>Measures to overcome the slowdown:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Investment:<\/strong> Investment levels are influenced by many factors such\nas investor confidence, bank lending, and infrastructural constraints, but\ninterest rates are by far the most important factor for they determine the\nprofitability of investment. So recently RBI reduced the interest rates in\nright direction<\/li><li><strong>Rupee exchange rate:<\/strong>\nThe exchange rate is a crucial price that determines the amount of rupees\nearned per dollar of exports and exercises an important influence on the\nprofitability of exporting firms Between January 2014 and June 2017, the rupee\nappreciated by 10% in nominal terms and 15% in real terms (adjusted for\ninflation). <\/li><li>The poor export performance\nin this period is no surprise. So government should work bilaterally and\ncontrol the appreciation of rupee<\/li><li><strong>Counter-cyclical\npolicies:<\/strong>\n&nbsp;If there is a slowdown or downturn in an\neconomy, governments should use counter-cyclical, expansionary, macroeconomic\npolicies to revive growth.<\/li><li>Fiscal policy should\nprovide a stimulus, preferably by stepping up public investment. Monetary\npolicy should provide a stimulus to private investment by lowering interest\nrates.<\/li><li><strong>Sustainable investment:<\/strong>\n&nbsp;Government borrowing is\nalways sustainable if it is used to finance investment and if the rate of\nreturn on such investment is greater than the interest rate payable. So\ngovernment should promote PPP model investment<\/li><li><strong>Fiscal space:<\/strong> Allow the\nfiscal deficit to rise by 0.5% of GDP, using that to finance public investment,\nand to drop interest rates in steps by at least 2 percentage points, which\nwould also help the exchange rate depreciate. Together, these would stimulate\ninvestment and promote exports, to revive economic growth.<\/li><\/ul>\n\n\n\n<p><strong>Way forward: <\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The global economy is undergoing a\ncrisis and has weakened significantly. It is extremely volatile at this stage,\ninvestor&#8217;s confidence across the globe has fallen sharply and downside risks\nare emerging each day. <\/li><li>Against a backdrop of unresolved\nstructural fragilities, a number of shocks have hit almost all the economies.\nOn the other hand, the scope for continued policy support in advanced economies\nhas become much more limited and has, in some cases, been exhausted<\/li><li>So the government should take\nappropriate measures to improve the credit cycle through investment and savings\nand promotion of foreign investment will bring the economy from slowdown in\nfuture.<\/li><\/ul>\n\n\n\n<p>Source: <a href=\"https:\/\/www.livemint.com\/Opinion\/6Lj1pRwzYqCIRJzKDMDrfN\/Why-the-economic-slowdown-and-how-to-fix-it.html\">https:\/\/www.livemint.com\/Opinion\/6Lj1pRwzYqCIRJzKDMDrfN\/Why-the-economic-slowdown-and-how-to-fix-it.html<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context: slowing down of economy and its impact Present economic situation of India: The demand for passenger vehicles slowed down during the second half (beginning September 2018) of this financial year because of many reasons-high interest rates, higher fuel prices and lack of credit. At a very broad level, demonetization-a radical policy decision-and introduction of&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/7-pm-what-happened-to-economy-during-the-first-term-of-modi-16th-august-2019\/\">Continue reading <span class=\"screen-reader-text\">7 PM | What happened to economy during the first term of Modi | 16th August, 2019<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":49370,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,9],"tags":[],"class_list":["post-51283","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-7-pm","category-public","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2019\/07\/7-PM.png?fit=1000%2C500&ssl=1","views":{"total":0,"cached_at":"","cached_date":1704766479},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/51283","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=51283"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/51283\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/49370"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=51283"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=51283"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=51283"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}