Home Discover Journals India's Economic Slowdown: Cyclical or Structural?

India's Economic Slowdown: Cyclical or Structural?

By Finserv MARKETS - Dec 18,2019
Views Icon293 Views 0 0 Comments

India's Economic Slowdown: Cyclical or Structural

Despite the Finance Minister evading questions about whether India is facing a slowdown or not, it’s official that the country is already experiencing the pangs of an economic slowdown. There is no denying that India is in a slowdown; the question now is whether it’s structural or cyclical.

The government and all their representatives know this well but some are in a state of denial while some reluctantly admit to it. If we do a simple analysis of the indicators that contribute to the country’s GDP, it will not only reveal the presence of the slowdown but the extent of it.

In the April-June 2019 quarter, India’s GDP growth plummeted to 5% – down from a peak of 10.08% in 2006-07 under the Manmohan Singh government. In an economy, the gross domestic product (GDP) is made up of private expenditure or consumption, investments, government expenditure and next exports, which is total imports subtracted from total exports. [1]

Clear Signs of a Slowdown

Indicator Status
 

Private consumption

 

A decline in all parameters except retail loans.

 

Domestic car sales

 

Passenger vehicle sales declined by 23.69% in Sep 2019.

Commercial vehicles sales took a dive to 39.06% in Sep 2019.

 

Tractor sales

 

Fell by 14.1% during Apr-Jun 2019, the highest fall in four years.

 

Net exports

 

Plunged down to minus -1.2% in Apr-Jun 2019 from 14.7% in 2018.

These are just a few of the indicators that show clearly that India is in a slowdown. A detailed analysis will reveal how deep the rabbit hole runs. But again, the most important question remains: is this slowdown is cyclical or structural? The answer to that question might as well decide the fate of the economy and the nation in the not so distant future.

If you are worried about your business funding, investment portfolio or your retirement corpus getting negatively affected by the current slowdown, head to Finserv MARKETS for easy financial solutions. Whether it’s a Bajaj Finserv business loan, child education plan or retirement plan, Finserv MARKETS is a one-stop online platform for all your financial needs.

What is a cyclical economic slowdown?

A cyclical slowdown, as the name suggests, is part and parcel of the economic environment that goes through different highs and lows at different times. A cyclical economic slowdown is generally short-term because it occurs due to short-term problems that soon dissipiate. A good mix of fiscal and monetary policies can easily fix the problem.

What is a structural economic slowdown?

A structural slowdown is a problem that goes deeper and may arise due to some fundamental issues. Problems that restrict the smooth flow of business and adequate production of goods and services. A structural economic slowdown cannot be solved with fiscal and monetary policies; it requires structural changes which, in turn, requires taking some tough measures.

India showing signs of a structural slowdown

Private investment is the key to drive demand and its rate is measured by Gross Fixed Capital Formation (GFCF) as a percentage of GDP. GFCF as a percentage of GDP declined to 28.8% in 2018, from 34.2% in 2011. When the key driver of demand and growth is on a decline, it is one of the signs and symptoms of a structural slowdown.

Another indicator is the announcement of new investment projects. New investment projects stood at 5,882 in 2011 and fell down to 3,708 in 2018. Again, gross domestic savings as a percentage of GDP, which is a vital indicator of economic health, declined from 37.2% in 2011 to 29.3% in 2018.

Other clear but alarming signs of a structural slowdown include declining wage growth, rising unemployment (at a 45-year high), crises in several industries, and low inflation. The ongoing liquidity crises with NBFCs and a slew of bank frauds and defaults have only worsened the situation.

However, if you are an entrepreneur, you have to take all these problems in your stride and focus on giving your best to growing your business. If the ongoing credit crunch has affected you, consider taking a Bajaj Finserv business loan available on Finserv MARKETS. You can be assured of easy and faster approvals, flexible terms and attractive business loan interest rates.

Can the present government deliver?

In 1991, the Indian government was faced with a similar situation but was able to overcome the slowdown due to a series of economic reforms. As a first step, the current government has to admit that we are in a slowdown and come out of this state of denial. The time for fiscal and monetary policies may be over and now is the time for the government who came to power with a huge mandate to deliver. If it was possible in 1991, it can be done again.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!

Comments

Connect with Us
Connect with Us

Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522