India’s Economic Slowdown Self Inflicted through GST, Demonetization

India’s economic slowdown is being termed as ‘severe’ and worst in the last 20 years. The Centrum Broking reported this economic slowdown as self inflicted.

The Economic Downturn

The report pointed to the three shocks that contributed to this state of India’s economy. Unplanned implementation of GST, an immediate announcement of demonetization and financial crisis of NBFC together added to the slowdown. The former two stood as obstacles in the way of recovery. Self inflicted decisions of the government. The opposition highlighted the government’s failure.

In answer to this, government highlighted its achievement of 7% GDP growth rate asserting it to be the highest in the world. However for FY 2019-20, expect a drastic fall in GDP to an estimated 5%-6%.

This downturn impacted both rural and urban demand. The investment figures are low and unemployment is on a constant rise. Economic slowdown extended to financial stress among rural households, farmers incomes and industrial output. The prolonged crisis spread over all sectors in India.

Moody’s reduced its GDP growth forecast from 7.5% to 5.8% in three stages. Similarly, RBI lowered its growth projection to 6.1%. Moreover, the World Bank cut down India’s growth forecast to 6%, far less compared to other Asian developing countries. It warned India about the weakening of its financial sector if the situation persisted for a long time.

Experts Take

According to Mahesh Vyas, CEO and Managing director of CMIE, stated that this economic downturn started in 2011-12 and the economy could not recover since then. Maitreesh Ghatak, Professor of Economics at the London School of Economics, stated that demonetization cracked up the informal sector generating huge employment losses. Experts believe this self inflicted economic slowdown to end by Mid 2020.

Future Expectations

The report stated that the previous slowdowns were because of external factors. But this extended downtrend due to Demonetization and GST will be slow to rebound. However, there are expectations of economy to normalize in quarter First or Second Quarter of 2020-21. Centrum Broking encouraged investors to give away defensive portfolios and increase weight age to rate like corporate, banks and auto.

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