Currently, there exists a persistent shroud about an economic slowdown. For those who are still grappling with the concept, consider this as an example. You are deriving a monthly salary from working in a firm. With that salary, you buy your groceries from a supermarket, dine at a restaurant, employ a help in your home and pay your taxes. What has happened here is that the movement of the money has generated activities within the economy, which would not have happened if you had simply deposited the salary in a bank. In other words, this capital movement has contributed to the Indian Gross Domestic Product (GDP).
GDP, in the conventional sense of the term, simply means the measure of all the goods and services produced within a country during a specific time. In this sense, GDP measures the movement of money through and around the economy or rather the economic activity. The above instance adequately substantiates how economic activity contributes to the country’s GDP. Now this cycle of activity is supposed to work and add to the economic activity and GDP.
However, it is this economic activity that has taken a beating in India, since the beginning of 2019. As per data from the Central Statistics Office, the GDP growth from January to March 2019 has slowed down to a 5-year low of 5.8%. If we consider the economic activity taking place after the period, it would be pragmatic to concede a further slowdown.
Given that consumption forms the most important part of the Indian economy, thereby impacting the overall economic health of the country, it would be prudent to take stock of any slowdown in consumption. The most recent example of this is the crippling of the auto sector, due to a paucity in demand and recurrent job losses. As per the data released by the Society of Indian Automobile Manufacturers (SIAM), vehicle sales across categories, including passenger vehicles and two wheelers have witnessed a decline of 18.71%, the sharpest fall in the last 19 years.
The impact of this deepening slowdown has been felt beyond discretionary purchases such as vehicles and has impacted other industries such as the Fast Moving Consumer Goods (FMCG) companies. For Hindustan Unilever, considered to be the largest FMCG Company, there was a 7% point dip in volume growth between the June quarterthis year versus the same period last year. Other companies like Britannia and Dabur have also recorded a similar slide, which indicates a worrying trend, given that people seem to be going slow on even everyday purchases.
Such an all-round demand deceleration is worrying given that India has primarily been an economy where supply is constrained. At the core of it lies the obvious fact that incomes are simply not rising enough. Of particular interestis the decline in household savings, as they are a net supplier of funds to both the corporate and the government sector, which have declined to 17.2 % of GDP in 2017-18 from 23.6 % of GDP in 2008-09.
The current slowdown in demand is an undeniable fact that the government will need to address. Multiple meetings have been held between the Finance minister and the industry heads to reverse the prevalent economic slowdown. It is crucial that the government enables the initiation of high-end growth, sustained by a virtuous cycle of savings, investments and exports to kickstart the Indian economy again. For this to take place, it is imperative that a coordinated policy response is formulated with the support of the private sector.
India Outbound
August 21, 2019
source https://indiaoutbound.org/kickstarting-a-slowing-economy-is-a-challenge-that-the-indian-government-needs-to-fend-off/
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