Finance Minister Nirmala Sitharaman admitted in the Rajya Sabha Wednesday that the Indian economy had slowed down but clarified “it is not recession yet; it won’t be”. She said the slowdown didn’t unfold overnight and “there is a trail”. Sitharaman defended GST move but added that “it can do better” in terms of net collections.
ThePrint asks: Slowdown not recession says Nirmala Sitharaman: Is Modi govt still in denial on economy?
Five per cent growth isn’t recession, but slowdown of an economy reaching $3 trillion mark is worrying
The Modi government is 100 per cent in denial of India’s economic slowdown. Capital investments are non-existent, companies are neither setting up factories nor investing in capacity. This is also corroborated by the fact that the capacity utilisation in the manufacturing sector is hovering around the 75 per cent mark.
There are two things at play here. First, companies are not setting up factories because investment is not being utilised. Second, the eight core sectors, which are 38 per cent of our economy, are also facing slowdowns. Further, electricity consumption is not looking good either.
When the market falls 20 per cent from the peak, stock markets declare it a bear market. In the face of overwhelming wholesale and retail data suggesting a downturn, I would say that the Modi government is in denial.
Growing at 5 per cent is technically not recession, but when an economy inching towards the $3 trillion mark slows down, one feels the pinch. There are three things that drive the market, first is sentiment, which is changing every minute. Second, markets tend to go up when capital is available, but fresh investments are not being made. Third, if 38 per cent of the economy (core sector) is not growing, how can the rest?
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There is a need for big bang measures to drive the economy.
Spate of measures announced in last few months indicate Modi govt is not in denial about the economic slowdown
Fellow, National Institute of Public Finance and Policy
The Modi government has over a couple of months announced measures to revive the economy out of a protracted slowdown. A cut in corporate tax rates, measures to boost bank lending, setting up a distressed asset fund to help give a kickstart to the real estate, sops for the auto sector and other such measures imply that the government has accepted the Indian economy is passing through a weak phase and requires policy intervention.
While the effectiveness and the timing of these policy measures are debatable, the spate of measures announced indicate the Modi government’s admission of the economic slowdown.
The typical definition of a recession is two quarters of negative growth. While we may not be in a recession yet and have not faced one in the post-liberalisation era, there is no denying the fact that our economy is in deep distress.
The last five quarters have seen a slowdown in GDP growth rate. There is a consensus that the GDP growth for the July-September quarter would have weakened further. Most of the high frequency indicators point to weak demand. The Modi government cannot afford to derive comfort from the policy measures it has announced so far. It needs to be recognised that economic recovery is going to be a slow process. Fundamental reforms rather than quick fixes are needed to arrest the slowdown and ensure long-term macroeconomic stability.
Views are personal.
If India’s GDP rate shows no signs of improvement, there will be political consequences
Professor, National Institute of Advanced Studies
The Narendra Modi government is denying the current economic slowdown. A developed economy’s growth rate is hurt deeply by a recession. But in the case of a developing economy where a substantial section of the population is still under pressure, a slowdown can, at times, have the same effect as a recession. Slowdown is the larger problem for India, we can’t wait for recession to hit the economy. India has never had a negative growth rate but that doesn’t mean that it is not facing a crisis now.
A slowdown can be attributed to two components: one, there has been a long-term failure of the economic liberalisation in the 1990s, particularly in terms of absorbing people left out of agriculture. Second, policies like demonetisation have made things worse.
Nirmala Sitharaman may have introduced sector-wise reforms, but it is imperative to understand what we mean by these reforms. Are they targeted at absorbing the labour force or are they simply targeted at a higher growth rate? We need to get rid of the knee-jerk statements about reforms.
If India’s GDP rate shows no signs of improvement, there will be political consequences, just like what happened in the West during the 2008 recession. Markers like stock markets doing well and foreign flows coming in are a sign of failure. If there is a collapse locally, then the stock market is completely dependent on foreign capital.
Unfair to term a 5 per cent growth rate as economic slowdown
BJP National Spokesperson
I don’t think there is a question of the Modi government being in denial. There are economic challenges mainly because India is still an emerging economy. There have been challenges in the past, and there will be challenges in the future too. In fact, economies all over the world are facing such issues, it’s more so for emerging economies due to certain global factors.
If we look at the latest survey by the Economist magazine, it has listed India as one of the top ten fastest-growing economies in 2020. Further, it is not the first time that the growth rate has slowed down to 5 per cent. It has happened under former Prime Minister Manmohan Singh’s Congress government too, both in 2008 and 2013.
It is easy to draw political points out of this and condemn the Modi government. However, the fact is that India’s economy is fundamentally and structurally very sound.
We are facing technology and policy-led transitions in sectors such as automobile, telecom, energy, banking and finance and retail and trading. Facing economic challenges in times of such massive transitions are expected and inevitable. India is set to reach a 6.7 per cent growth rate again by the next financial year.
In the past, close to 50 per cent of our economy was black money economy, but after demonetisation, it is more formal than ever before. However, some problems will always arise because people resist such interventions. It would be unfair to term a 5 per cent growth rate as economic slowdown. India doesn’t claim to be a developed economy like Switzerland or Sweden yet, but its economy is stronger today with transparent and robust foundations.
Modi govt may not be in denial, but is far from taking responsibility for economic slowdown
Senior associate editor, ThePrint
Nirmala Sitharaman, perhaps for the first time, admitted to India’s economic slowdown Wednesday since taking over as the Finance Minister in May despite being confronted with a slew of bleak macroeconomic data.
India’s economy has been sliding over the last one-and-a-half years led by a slowdown in investment and consumption. GDP data shows that the economy has been declining from the first quarter of FY 2018-19 and is expected to fall for the sixth consecutive quarter when the GDP numbers for the July-September quarter are released on 29 November. Economists expect the second-quarter GDP of FY20 to fall below 5 per cent.
The Modi government may no longer be in denial of the state of the economy, but is definitely far away from taking responsibility for the slowdown. It has preferred to blame the UPA government for its decisions taken years back.
The Modi government will have to acknowledge the fallout of some of its decisions like demonetisation and the hasty rollout of the GST on the economy and job market. It will have to announce steps to revive consumption and demand while assuaging fears expressed by businesses and investors over policy uncertainty and tax terrorism.
By Kairvy Grewal, journalist at ThePrint
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