Fast Tracking Indian Economy: A Challenging Task Ahead

Case Code: ECON079 Case Length: 22 Pages Period: 1992-2019 Pub Date: 2020 Teaching Note: Available |
Price: Rs.500 Organization : - Industry : - Countries : India Themes: Economic Slowdown, Indian Economic Slowdown, Measures to Revive Economy |

Abstract Case Intro 1 Excerpts
Introduction
On November 08, 2019, global rating agency Moody’s Investors Service (Moody) cut India's outlook from 'stable' to 'negative', in a reflection of the increasing risks to the country's economic growth and the government's failure to address long-standing economic and institutional weaknesses. With this, Moody's joined a growing list of global agencies that had had cut its estimate for India's growth to 6.1% from 7% projected in July 2019, calling on the country to use monetary policy and broad-based structural reforms to address cyclical weakness and strengthen confidence. The World Bank also slashed the country's economic growth forecast to 6% from 7.5% while the Asian Development Bank (ADB) cut down India's growth outlook to 6.5% from 7.2 for the fiscal year 2019-2020.
Several renowned economists also cautioned the Indian government and expressed concern about the grim situation the Indian economy was facing. Economists at the State Bank of India (SBI), Nomura Holdings Inc., and Capital Economics Ltd. lowered their growth forecasts for the quarter ended September 2019 to between 4.2% and 4.7%. Further, Dr. Abhijit Banerjee (Abhijit), the 2019 Nobel winner for Economics, also expressed concern and noted, "Indian economy is on shaky ground. After witnessing the present (growth) data, just can’t be sure about it (revival of economy in near future). In the last five-six years, at least we could witness some growth, but now that assurance is also gone." Dr. Raghuram Rajan (Dr. Rajan), former governor, Reserve Bank of India (RBI), India's central bank, also warned, "India's fiscal deficit conceals a lot and is probably pushing Asia’s third-largest economy to the brink of a worrisome situation." Dr. Rajan opined that "India has slowed considerably from the go-go years before the financial crisis, but even from the 9% growth in the first quarter of 2016."
The view that the Indian economy was staring at a protracted slowdown had gained unanimous acceptance by mid-2019. The annual report of the RBI for the fiscal year 2018-2019 too confirmed that the Indian economy had indeed hit a rough patch. The GDP growth rate of the economy had slipped to 5% in the first quarter of financial year 2019-2020, the lowest in over six years. Be it the collapse of the automobile sector in the financial year 2018-19 or the rising number of non- performing assets (NPAs), sluggish consumer demand or failing manufacturing sector, all had a hand in this deceleration of growth rate. "In addition to these factors, the slump in the economy was also affected by various exogenous factors. A leading dampener was the US-China trade war, which had intensified over time and had contracted world trade and, in turn, Indian exports. Also, high rates of Goods and Services Tax (GST), a liquidity crisis in non-banking financial companies (NBFCs), and a shift in the behavioral pattern of the workforce due to the entry of young people had discouraged savings. “When people save less in the economy, it leaves less money for investments", said Amit Kapoor, Chair, Institute for Competitiveness while speaking about the
dynamics of India’s growth slowdown.
Contrary to the prevalent grim outlook on the Indian economy, several experts and industrialists were optimistic about India's economic growth trends. N K Singh, Chairman, Finance Commission, India, stated, "I do not regard that the current economic sluggishness is something that the country is going to experience for too long. I remain optimistic that the current slowdown is as much as anecdotal, episodic as much as cyclical and structural." NR Narayana Murthy, Co- founder, Infosys, echoed the same opinion on the Indian economy's slow growth. He said he "was not greatly concerned about slowing economic growth as it was inherently cyclical and that the main change was that people’s expectations had risen."...
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