Economic Slowdown


The recent slowdown in economic growth has once again raised the question of sustainability of India’s economic growth. The economic growth slumped to 5.7% in the current quarter as per the recent estimates released by the Central Statistics Office under the Ministry of Finance. There has been a lot of politicisation on the cause for this slowdown with the majority terming it as an effect of demonetization. It is true to some extent that the demonetization, done by the government with the objective of bringing black money, promoting digital transaction, check counterfeiting of notes, did lead to some disruption of economic activity due to a cash crunch. It did disrupt the small-scale businesses and caused hardships to poor due to the poor implementation. But terming the demonetization as the major reason for the slowdown in economic growth would be inappropriate.

The reasons for the slowdown in the economic growth is the weak private sector investment and the fall of exports due to the strengthening of rupee which has made the imports cheaper and a slowdown in the manufacturing activity. The weak private sector investment has been mainly due to the inability of the public sector banks (PSBs) to lend money to the businesses for infrastructural and manufacturing activities. The Non-Performing Asset (NPA) of the banks has risen to alarming levels. This has been a cause of worry for the current government. The Index of Industrial Production which is a measure of the industrial output of a country has contracted that is below 50. This shows the manufacturing of the country has contracted as compared to the same fiscal of the last year. This has proved to be a major challenge for the government.

The government has taken major steps to solve the problem of the slow economic growth. These are:
Non-Performing Assets(NPAs)
To solve the problem of the NPAs the government has launched “Indradhanush scheme” which focuses on the recapitalization of the PSBs through the infusion of capital by the government.
The second major initiative of the government regarding the resolution of stressed assets has been the enactment of the Insolvency and the Bankruptcy Code(IBC) Act 2016 which focuses on the early resolution of the NPAs.
The Banking Regulation Act has also been amended which will give the RBI the power to direct banks to initiate insolvency process under the IBC.

The poor condition of the manufacturing in India can be attributed to the lengthy and cumbersome process that the businesses had to go through.The license raj system and the bureaucratic mindset has further compounded the problem.This has led to corruption and harassment of businesses in the guise of implementation of rules.
The present government has initiated a slew of measures like digitization of the registration procedure, self-certification can be done by the businesses themselves, and a change in the mindset of bureaucracy.The issues, however, are not fully resolved and a thrust on labor laws and more transparent environment need to be created in order to make the business environment more conducive and friendly to the investors.

Other steps like increasing the government spending which will have a direct impact on the generation of jobs and more lucrative environment for the foreign investors are being taken.The huge thrust on the building of roads, railways, and ports are a part of this strategy.The government has also laid a major stress on the development of entrepreneurial skills among the youths especially in rural areas which will in the coming years make India an entrepreneurial hub.The government schemes like MUDRA yojana, StartUp India are a part of this strategy.The social and gender inequalities have also led to the poor economic growth.The government has recognized the importance of women and weaker sections who can play a major role in the transformation of the economic scenario.The schemes like the StandUp India and others are being designed with the special focus on promoting entrepreneurial skills among women and marginalized sections.

The recent Goods and Services Tax introduced in the whole country will further help in removing the cascading effect of taxes and unify the country into a single market thus promoting ease of doing business.
These steps initiated by the government are commendable.The issues, however, need more reforms in the form of the flexibility of labor laws, more transparency which can be brought about by digitalization and a more comprehensive focus on the infrastructure which is extremely vital for the manufacturing growth.


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