Imploding financial wave of India
India’s gross domestic product (GDP) growth has decreased abruptly from 8% a year last year to 5% in the second quarter of 2019. The ongoing crisis is a deep structural issue rather than merely a short-run one. The sectors that promote the Indian economy’s growth such as Automobile, Real estate, FMCG, Manufacturing, Agriculture are underperforming plus the jobs in these sectors are cut down.
Below mentioned are the warning indicators of the current economic slowdown that were flashing three to four years back:-
- IL&FS Crisis amounted for more than 91K Cr and it had huge government investment such as LIC holding.
- The downfall in the inflation rate starting from 2014 to date which indicates demand shortages.
- NBFC and the banking crisis in 2015-16
- The decrease in Real estate appreciation which eventually impacted the Buyers count
- Consistent Rupee Fall
- GDP downtrend consistently
- Auto sector manufacturing downsizing
- The decrease in FMCG demand from the last 7-8 months. This is generally considered as the last alarm in an economic slowdown but it still failed to awake the current Government.
Major factors responsible for current financial crisis are-
- Restricted monetary and fiscal policies. Making CSR as a criminal offense, Taxation on Foreign investment and capital gain and anti-pro-rich policies (40 or 50% tax on more than 5 Cr incomes) are few examples which lead lost in confidence in Indian markets and Institutes started moving out to other APAC nations.
- Public Sector Banks are burdened with high Non Performing Assets that have resulted in lending restrictions and repairing their balance sheets by making provisions for Bad Loans. Bad debts lead to no lending, collapse of demand, no new investment and a decrease in consumption.
- Demonetization leads to a lack of liquidity and cash which impacted unorganized employment sectors which constitute almost 70% of total employment. This has affected the entire value chain of supply and demand especially in the rural areas since the entire rural economy runs on cash
- Frequent changes in reforms with a lack of better strategy and efficient implementation. GST implementation is the best example that is still facing instability in its structure. GST has hindered the small businesses by withholding inventory until they shift to the GSTN or and become compliant with the several rules and regulations that are part of this tax.
- Lack of focus on economic issues and deviating population to Nationalist issues such as NRC, politicizing Balakot & Uri
- Recent data from the National Sample Survey Office suggests that the Indian labor market has created no new net jobs since 2004. In fact, the growing numbers of organized-sector workers are on insecure short-term contracts. The Indian government did a poor job of producing new jobs.
Unfortunately, India has lingered in developing the human capital, rural economy and urban infrastructure needed for a modern, competitive economy. Without these requirements, India is deprived of growth. Economic growth and human capital development are closely related. India has steadily become one of the world’s most unequal economies. There are no quick solutions. India will need at least a generation to develop essential human capital.