A worried present and an uncertain future

The Indian economy’s Gross Domestic Product (GDP) as per the April-June quarter 2019 is 5%according to the Central Statistics Office (CSO). The  growth rate is a 6 year low.

There are many indicators that the economy is slowing down: rural consumption has hit a seven-year low, there is not enough new private investment, the Index of Industrial production has contracted 5.2% in the September quarter. Unrecovered loans at government owned banks are crippling the economy. the government has only managed to reach 12% of its disinvestment target and the global economy is down, affecting India.

The scant consolation seems to be that startups are creating jobs.

 

The Finance Minister, Nirmala Sitharaman defends her handling of the economy
Ups and Downs in the Indian Economy from July 2016 to July 2019

There are plenty of reasons for the slowdown

Rural Consumption

It hit a 7-year low in the September quarter. The Fast Moving Consumer Goods (FMCG) sector which grew at around 20% in the 3rd quarter of 2018, dropped to 5% as per market researcher, Nielsen in its latest report.

 

Private Investment 

Negative sentiments, lack of proper Return on Investment (ROI) from the major labour-intensive sectors like construction and automobiles have hit the economy hard. Though the Finance Ministry promised that they will bring 100 lakh crore investment for infrastructure from 2019-20 to 2024-25, pending projects, roadways and railways are yet to be completed leading to cost over-runs.

Index of Industrial Production (IIP)

IIP which includes eight key industries, coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity account for the crucial manufacturing sector. It has reduced by 5.2% reflecting an industrial crisis in the country.

Bank Crisis

The Central Government announced the merger of 10 public sector banks to make it as 4 big banks in order to boost the economy. Lots of factors such as cultural divide, higher NPA (Non-Performing Assets) of Banks, share swap-ratio, the strike by government banks and implementation of the 7th Pay Commission packages hamper the process.

Unemployment Rate 

The unemployment rate in India rose to 8.5 per cent in October 2019, according to the Centre for Monitoring Indian Economy (CMIE). This is the highest unemployment rate since August 2016. According to CMIE, the urban unemployment rate for October  stood at 8.9%  higher than the rural unemployment rate of 8.3%.  Joblessness due to lack of 21st century-skills , invasion of modern technology and an outdated education system are some of the main reasons.

Disinvestment of Public Sector Undertakings (PSU)

The Narendra Modi administration has been able to garner only Rs 12,357 crore, or 12 per cent, of its disinvestment target of over One lakh crore rupees. Inefficiency, overproduction and opposition by powerful trade unions have been the causes. The Department of Investment and Public Asset Management (DIPAM) has been inconsistent in determining its policies for different PSU’s.

International Factors

A weak currency, Indian National Rupee (INR) is trading at $70.73 per US dollar as of today. Implementation of multi-lateral trade agreements with different countries going against India’s interests. Foreign Trade Agreements (FTA) with different countries, General System of Preferences (GSP) with the United States of America (USA) and the Regional Comprehensive Economic Partnership (RCEP) with the South East Asian Nations are affecting India immensely.

A deficit trade balance with countries such as China is affecting India’s manufacturing sector. Despite the much-hyped Make in India programme, results are yet to be seen. Smartphones, Televisions, Laptops are all entering the Indian market from abroad. The market share of foreign smartphone companies such as Xiaomi, OnePlus, Oppo and Vivo have more than doubled since 2014.

This is also connected to the liberal Foreign Direct Investment (FDI) norms laid down by the Ministry of Commerce and Industry. Record investments are flowing into Telecommunications, Information Technology (IT) and Financial Services.

Shining Light

Start-ups are changing the nature of the Indian economy. The innovative ideas of the youth coupled up with funding coming from Angel Investors, Private Equity (PE) and Venture Capital Investors are driving growth. Almost every sector in India has a startup.

Paytm, Ola, Oyo Rooms, Swiggy, Flipkart, Byju’s, Freshworks, Dream11 Entertainment, Hike Messenger etc are creating lots of jobs leading to a knowledge-based economy. Ample focus on Research and Development (R&D) with incubation centres set up in private and government educational institutions are giving a boost to the sector.

By Rahul Manoj

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