Is Their Economic Slowdown in INDIA ?

I

ndia, the country which has made big Economic as well as social imprecation on the world. Many financial and economic organization believes that India will become the world third-largest economy in the world.  From last few decade economy of India have growth to 2.5 trillion dollars from 0.5 trillion dollars. Many companies in India particularly in pharmaceuticals, automobiles, Information Technologies Industries have played an important role globally.

            From the last 3 Years, India was one of the fastest-growing economies. Many people thought that India will overcome china as it reached to GDP growth of 8.2%  in previous years. But from the last few quarters, the GDP growth of India is continuously falling. In the first quarter of the year, 2019-20, India has reported a growth of 5% from 5.8 % respect to the previous quarter. This is one of the lowest growth rates in the last five years. India slipped to the seventh number of positions from the sixth one. For analyzing depth of this slowdown let’s look at some important events from past to future.

1)    Banking crisis In India:-

         The banking system is the veins of any economy. Performance of the Banking Industry will lead to a path of growth to any country. For the last many years Indian Banks are seating on a large amount of NPA’s(Non-Performing Assets). Actually, Indian banks had given loans to various businesses without analysis of their profitability, assets. And when these businesses are unable to generate profits then it will lead to twin balance sheet Problem for banks, means the liability of the business is increasing continuously and assets of banks are decreasing continuously. These lead to decreasing the liquidity capacity of banks.

        There are many big defaults had done as kingfisher airlines, Suzlon energy where banks had to struggle to recover their capital, in many cases capital is still not recovered. Also, There were many big frauds happened like Nirav Modi scam. Now the Indian Government has passed IBC( Insolvency and Bankruptcy Code )to liquidate assets of these NPA’s this code have given a big relief to  banks as it reduced NPA’s of banks to 89189 cr from 8.95 lakh cr.

2)    Liquidity crunch in NBFC companies:-

        NBFC (Non-banking finance companies) provide a very significant role in economic growth as they provide loans to purchase many products. In India, there is one Drawback in the business model of NBFC’s. these companies raise funds from the bond market and share market. The basic problem is this that NBFC firms borrow money for the short term of a period and lend them for a long term of a period like buying cars, building homes, etc. hence there are liquidity cries in these companies. They are unable to manage sufficient funds for various purposes.

      Problems in this sector start when one of the major semi-government company IL&FS(Infrastructure Lesing&Finanancal Services) defaults its payments of bond interest. IL&FS Provides fund to various infrastructure projects in India and reported that default is due to delay in the completion of projects. From that time one by one many NBFC and HFC failed their payments due to the withdrawal of these bonds. These have proceeded to consumption slowdown in various sectors. Now NBFC’s are trying to sell their loans to banks so they could overcome this liquidity crisis and manage working capital for business.

3)     Various Economic Reforms:-  

       In last some Year Indian Government carried out so many economic reforms. Absolutely these reforms are good for the Economy but, affected badly for the Indian Economy in the short term, Particularly Demonetization and Implementation have Disrupted Indian Economy. In November 2016  Indian The government had decided to wipe out notes of value  500 rupees and 1000 Rupees. This Decision had been applied so quickly that people were not got sufficient time to digest these events. By the  1000 rupees and 500 Rupees, the Indian government had wiped out 80% of its Paper currency which values more than 90% amount of currency in use. These Bold steps have impacted many small scale businesses as well as General Public, As the time of public wasted in replacing this money.

      In  July 2017 Indian government replaced the old Indirect tax system By GST. Before the implementation of GST, we have a very complicated tax system which leads to a cascading effect on tax i.e. Tax on tax. Although This is a good reform for growth in the long term, it affected badly the Indian economy. As many of unorganized business forced to become an organized one. In India, almost 60% of business was organized business and they can not cop up with these two drastic changes(Demonetization & GST).

4)    Slowdown In Automobile Industry:-

          As the Indian Automobile Industry contributes 49% share in the Indian Manufacturing Sector, it plays a major role in the growth of the Indian Economy. Also, this industry provides jobs to millions of people in India. As there is a large fall in the consumption of automobiles in India these industries facing big challenges. We have already discussed in detail about this industry in previous posts.

5)    Decreasing of Consumption of FMCG sector:-

            FMCG Sector(Fast Moving Consumer Goods) sector cames at bottom of consumption. Normally  Consumption in these sector does not affect by small disruptions, but this time many FMCG companies are reporting to fall in sales. It’s seams that consumption slowdown from the automobile industry is shifting to this sector. This is a bad sign for the economy. If we do not take some serious action then we could face a worse situation in the upcoming time.

6)    Tread war Between USA and China:-

           From the last one-year Tread war Between the USA and China is going on, and this situation will become worse due to the upcoming election in the USA. Recently the USA has imposed a 10% tariff on worth 300 billion dollars Chinese import.in response to it, china has devaluated its currency at historic low levels. Impact of tread war is such high that now china's first time in the last decade not the topmost trading partner of the USA.

        India can take short-term advantage of this situation. Because many American people prefer other goods then chines goods due to a high rate. And China was importing agricultural grains from the USA before. So in this situation, Indian companies can lake a good advantage. But in the long run, this scenario is not good for the global economy. We had seen in the past how a fight between two superpowers could affect all countries in the world. Tread war had been lead to The Great depression of 1920.

             So from the above points, we have seen how the Indian economy reacted during various events. We need to take some solid steps towards increasing our consumption growth, so we can take benefit from the USA-China trade war, and prepare to face the upcoming global Crisis.