The continuous shrinking GDP for the successive sixth quarter depicts worrying signs for the India’s economy. The problem requires policy changes and not tax cuts. If the trend continues then the 2010-2020 decade will be remembered in Indian economic history as the longest spell of low GDP growth. Moody’s cut India’s GDP growth rate projection to 4.9% for FY 2019-20. Asian Development bank and Fitch Ratings too cut India’s GDP forecast to 5.1% and 5.5% respectively.
Declining GDP Growth Rate
The GDP growth rate came down from 13.3% in March 2010 to 4.5% in Q2 of 2019. The saving to GDP ratio is declining continuously since 2011. The average rural wage growth fell by 3.1% in 2019. The investment-led slowdown has turned into a consumption-led slowdown as investment fell by 1.1% in the last quarter. Exports decreased by 1.1% in October and the low rural income has slumped consumption.
The components of GDP include consumption, investments, government spending and exports. While the non-government part is not performing positively, the entire burden for economic growth depends on government expenditure. This resulted in an increase in government expenditure by 15.64% in the last quarter. But this is a short term solution as the tax collection figures do not reveal any positive growth. The government collected around Rs 10.52 trillion till October 2019 as against the target of 24.61 trillion.
Experts are of the view that India’s economic slowdown is not cyclical but structural. Hence, it requires structural changes to tackle India’s economic vows. Agriculture, contributing 15.6% to GDP, needs the utmost attention as 60% of the population depends on it for livelihood. The government must focus on medium to long term goals rather than panicking on the current state of India’s economy. Also, it is necessary to invest in health and education to develop human resources so that skilled manpower lures global manufacturers to the country. The financial sector’s clean up is also an important action to improve the efficiency of banks and NBFC’s.
The history of the Indian economy since 1991 reforms show the country’s robust performance, answering many critics. But now, time is the key to revival. If the problems are not addressed with structural reforms, then the country might lose its advantage of the demographic dividend also. India’s economy needs a long term fix with policy changes rather than corporate tax cuts.