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No, India's Growth Slowdown is Not Part of a Bigger, Global Problem

By Finserv MARKETS - Dec 30,2019
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That India is facing the heat of an economic slowdown needs no assertion. The country’s GDP growth rate for the quarter ending September 2019 has dropped to 4.5%, as per data released by the National Statistical Office (NSO). The RBI has cut GDP growth rate forecast for FY20 to 5 %, a significant drop from the earlier projected 6.1 %.

Finance Minister Nirmala Sitharaman has in several announcements brought in a slew of measures to revive spirits. They include corporate rate tax cuts to slashed repo rates and loan melas for India’s Micro, Small and Medium Enterprises (MSMEs).

If you are a businessperson and are worried about cash flow, you could opt for a business loan, available on Finserv MARKETS. Just because the times may be not so conducive for a thriving business doesn’t mean you don’t put in place strategies to win customers. You may need to improve or diversify your offerings. if you have a business of three years vintage, you can opt for a business loan online without any paperwork or the need for collateral.

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 Is India’s Growth Slowdown a Global Problem?

Global GDP growth rate slows down as well

Let’s also keep in mind that there is a global slowdown. The IMF’s World Economic Outlook (1), released in Oct 2019, downgraded growth for 20019 to 3 %, the slowest pace from the time of the 2008 financial crisis. The projection for 2020 is 3.4 %. For advanced countries, the growth forecast is 1.7 % for both 2019 and 2020.

However, although there’s a marked global slowdown, India’s growth slowdown has more to do with a combination of some cyclical and many structural problems. One of the worries has been a dip in the gross fixed capital formation (GFCF) growth. For the quarter ended September of financial year 2019-20, the GFCF which is a sign of investment went up by 1 % compared to 4.04 % rate in the earlier quarter, according to Central Statistics Office data. CSO data also shows that GFCF share in the overall GDP dipped to 27.8 % during the quarter ended September, compared to 29.7 % in the preceding quarter. This has been the lowest share of GFCF in the GDP since Q4 of FY 2017. (2)

Industrial output dips

The other indication of a structural problem in india’s economy is the shrinking of India’s industrial production — according to the Industrial Production Index, factory output shrank 4.3 % in September, registering its worst show ever since 2012. Core sector growth contract 5.8 % in October 2019, while the contraction was at 5.1 % the previous month. Electricity generation dropped 12.4 % while coal production dropped 17.6 % in October 2019. The outputs of the other four core industries including crude oil, natural gas, steel, cement also saw declines. This negative growth is a symptom of stagnation. Persistent agrarian and real estate distresses have also added to the bulk of India’s structural problems. The crises in these two sectors has also affected jobs with India’s unemployment figures touching a 45-year peak.

All these issues are deep structural problems requiring structural reform, and may not be part of the global slowdown problem. Indeed, there is some kind of an impact owing to the global slowdown, but a majority of India’s troubles with the economy concern its own domestic situation.

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To conclude, the slowdown in India is not necessarily caused by the global slowdown, and has its own local, domestic reasons which need reforms. Some of them are underway while others need to be put into place for the country to emerge out of the slowdown.

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