Addressing the lower economic Growth

What is the issue?

An immediate stimulus is needed to regain the momentum to get India back to 8% growth.

What are the issues with economic growth?

• The real growth of GDP, i.e. after removing the impact of inflation, was only 5.7%, much lower than expected.
• For the past six consecutive quarters, the growth rate has gone down steadily, from 9.2% in March 2016, to 5.7% in June 2017.
• The growth rate will be below 7% this fiscal year. Which is potential loss of 1% (Rs. 1.5 lakh crore of national income) growth than expected.
• The manufacturing growth at 1.2% is the lowest in the past five years.
• There was a suspension of manufacturing activity and consequent de-stocking of inventory prior to the rollout of the Goods and Services Tax (GST).
• The banks are facing distress,the credit to industry is actually be shrinking.

What is the reason for this steep decline of growth?

• GDP Calculation -In India spending or consumption driven GDP calculation is given importance rather than growth driven.
• As a result, capital formation (the basis of future growth) is steadily declining for several years.
• Strengthening rupee- The significant challenge to the domestic industry is for past 6 months the rupee is 7% stronger compared to the American dollar,
• It is stronger than its Asian peer currencies too, including China, the Philippines, Indonesia and Thailand.
• This directly hurts India’s export prospects and increases flow of cheaper imports.
• Demonetisation- It certainly includes the negative impact on the informal and rural economy.
• There is a deflationary impact of low agricultural prices, and job losses around rural areas.
• Banking - The corporate sector and banks have been affected by the twin balance sheet squeeze.
• The corporates are over-leveraged, and banks have mounting bad loans.
• Infrastructure - Due to lack of effective access to electricity, improvement in infrastructure private investment are not picking up.

How it can be addressed?

• Investment in future capacity creates GDP growth of the future, It needs to be led by the private sector.

• Initiatives such as Housing for All, Smart Cities and Digital India give room for huge opportunities for private entrepreneurs.
• Elimination of gold imports will help addressing the trade deficit, promotion of Sovereign gold bonds will help this.
• The rupee needs to be weakened or else it will hurt domestic manufacturing even more.
• Jobless growth needs to be addressed, production based GDP must be promoted.

Source: The Hindu