Indian Economy- Present and the Future

While all news channels are busy minting their way to higher TRPs, missing the real important issues in entirety and the Twitterati and all other platforms discuss #CAA someone needs to talk about #Economy too. Employment is at a 45 decade high. Economists attribute woes to a mix of cyclical and structural slowdown, triggered by a mix of policies and quarterly moods. Some pass it off as the regular economic dip which hits the global markets every decade. India has been sailing through these economic depressions and actually growing but this time the slump is far below. With GDP at 4.5%, and core sectors suffering overwhelming target of a $3 Trillion economy by 2025 and all this amidst the shockwaves of the ‘economy bomb’, we have got to get our act right before it’s too late.

Understanding the Indian Economy:

Indian Economy is characterized as a developing market economy. It is the world’s fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). The Economist Intelligence Unit had suggested that growth in 2019-20 will be 5.2% – significantly below potential and evidently, it has turned true, as India’s GDP hangs between 4.5-5%. Nobel laureate Abhijit Banerjee has pointed out, household consumption has fallen since Prime Minister Modi entered office in 2014, something that hasn’t happened in “many, many, many, many years.” His advice: Get money into the hands of the rural poor and “pray.” While the ruling government’s two top leaders, the PM himself and ‘hand to the king’ Amit Shah believe otherwise. If you ask them, this is just a global slump and the BJP has, in fact, made some revolutionary economic reforms that have fulfilled decade-old demands of this industry.

Speaking at ASSOCHAM’s annual conference, Modi said that before 2014 the country was heading towards disaster. “My govt not only stopped it but brought discipline to the Indian economy,”

By far, the passage below which I read in an article on livemint.com explains GDP and its manifestation in physical terms in the most simple manner. Read on then we discuss a little more of it in the Indian context.

“The rain has stopped. You step out of home to run a few errands. On the way, you find a Rs. 500 note lying on the ground. You pick it up and put it in your trouser pocket, thinking you’ll donate it to the local charity. But you give in to temptation as soon as you cross the local book-shop and buy the latest bestseller for RS. 500. The bookseller is an alcoholic and uses the money to buy his stock of alcohol for the day. The liquor shop owner takes the Rs. 500 note and walks across to the local cinema and buys a ticket for the latest movie, featuring his favourite heroine. He also buys some atrociously priced popcorn and a soft drink. The cinema owner has to go to attend a wedding at the other end of the town and he gives that very Rs.500 note to a taxi driver, given that his driver is on leave.

What’s happened here? The movement of the initial Rs. 500 has made everyone better off. The initial Rs.500 has been spent four times and has generated Rs. 2,000 worth of economic activity. In that sense, the first Rs. 500 contributed Rs. 2,000 to the Indian gross domestic product (GDP). The same wouldn’t have happened if you had taken the Rs. 500 and deposited it in the bank or simply kept it in your pocket.”

The example shared above (which is inspired by a similar example in Lanchester’s book) shows precisely how economic activity adds to the GDP. One man’s spending is, after all, another man’s income, and the income can be spent again. So, the cycle is supposed to work and add to the economic activity and the GDP.

GDP, Nominal and GDP (PPP):

GDP, in the most conventional sense of the term, is the “measure of all the goods and services produced inside a country” at current market prices. Nevertheless, as John Lanchester writes in How to Speak Money: “GDP can be thought of as a measure not so much of size… It measures the movement of money through and around the economy; it measures activity.”

GDP of a country is the value of all final goods and services in a nation in a financial year divided by the average population of the country. It is called as ‘nominal GDP’ when the value is converted to exchange market rates to US$. GDP with respect to PPP (Purchasing Power Parity) is simply the total value of all the goods divided by the average population in a given financial year.

Where the India economy stands today?

During the 2008-09 recession in the last decade, India actually registered constant growth at 6% through the 12 months of the global economic slowdown. Now this time Global impact is much larger than the last decade as India’s exposure to global economies has increased, MNCs now enjoy a bigger bite of the Indian marketplace. Weak consumer demand and credit squeeze since 2018 post demonetization and GST (Goods and Services Tax), the economy has taken a dive. The ‘core’ sectors of any economy, as they are called are the deepest hit. These include automobile, real estate, banking sector, services, and manufacturing activities. 8 core sectors fell by 5.2% from 7.3% in September 2018 to 2.1% in August 2019. Major corporations are deep in loan and foreign players are withdrawing themselves. The crucial sector of Micro, small and medium enterprises which are vital players in the Indian economy needs our special attention.

According to Jammu and Kashmir’s leading trading body Kashmir Chamber of Commerce and Industries (KCCI), the imposition of curbs, spontaneous shutdowns and internet blockade in the Valley since August 5 has dealt a major blow to Kashmir’s economy as it suffered losses between Rs 14,295 and Rs 17,878 crore. This is just one state while there are several other cities losing trade and commerce due to conflicts.

The various reasons and discussions on the Indian economy clearly indicate that the usual market operations have been hindered which could be a fluctuation indicating an adjustment to change in systems of trade and taxation. However, the transition period should be shortened to ensure a good lift-off from here. Some external factors like America’s trade sanctions on China, India’s trade embargo with Pakistan and the global economic shockwaves have a major role to play in weakening India’s economy.

How to fix this?

In the recent rankings, India ranked 63rd in Ease of Doing Business Index and ranked 68th in the Global Competitiveness Report. The market is idling away in the hope of a demand boost which won’t be easy without reforms. While the supply side is focussed on by government demand creation remains grossly ignored. Indian markets are no good if supply growth and logistics management are bolstered but demand slumps. Generating more jobs would do the trick as it will help in generating income that will, in turn, boost the GDP. The government must shift focus towards MSME and controlling NPAs which are over Rs. 8 lakh crores now.

The Silver Lining: Why Now is the Time for Growth?

According to the McKinsey Global Institute, India stands to become the largest growth engine in the world in the upcoming global economic shift. The top companies have grown at 25-39% per year, banks grew north of 20% a year for over 2 decades. Urbanization rate which is a core structural growth driver in states and districts is north of 35%. India is not just a country it is a continent with 69 mega-cities with a million-plus population each. These smart cities possess immense growth opportunities. Agriculture, education and power sector have yet to see their due piece of growth and expansion. Programs like Digital India, Startup India, and Skill India have started showing their effects in the job market.

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