Reviving Economy

GDP growth in the second quarter of the financial year 2019-20 hit 25 quarter low. Our finance minister addresses the Rajya Sabha that the Indian economy is not in a recession but slowing down. Anywhere the authority must take responsibility for a failure and work on it to revive the cycle but here the govt declines!

Govt's move to revive economy:

NDA led govt is attracted more towards capitalism. The policies and reforms made by the govt in the economy are driving the economy towards the organized structure - right from demonetization, digital India and GST to reduction of corporate taxes. These were done to grow the Indian economy a 5 Trillion dollar economy by 2024. But unfortunately, we had to face the global recession and so the country's economy is also slowing down.

Now Govt needs to know what should they do to revive the economy first. And then how to make use of this recession to build our nation from an economic point of view. But the greatest responsibility of the govt is to save the people of India from the problems related to this recession (unemployment especially).

How the govt is trying to revive the economy?

Govt is asking for foreign companies to invest in the country. Promoting the start-ups to invest more. Providing Loans to the firms, providing concessions to newly established concerns, cutting the lending rates etc. Do all these things revive the economy?

Why does GDP growth fall?

GDP growth falls when the aggregate demand in a market falls. Value of Gross Domestic Product ie., the value of the products manufactured inside the country is GDP. Why is it falling? since there is no demand for them in the market ie., people don't want them or they don't have money to buy them. Now, where is the problem? The problem is with the demand side. But govt is focusing towards the supply side by providing loans, concessions etc to the companies. Also to back this statement we have the recently leaked Private Consumer Expenditure report by NSO says consumer expenditure hits 40 year low.

Why does it happen?

This state of the people is because of reduced informal or unorganized sector. India is a country where unorganized sector provides job for 90% of the labour force. But the unorganized sector in the country is in a bad state because of the strict economic policies like GST, digital economy etc. I will talk about it in my later post!

This made the fall in demand in the market. Promoting digital India was tragic in terms of the unorganized sector because every money flows into the bank account but getting that money out of the bank as a loan for the unorganized sector is tedious. While talking about MUDRA yojana getting loans is easy but the demand in the market is less and competition is high to shine (2.68% NPAs in 2019 from 2.52% last year). see here

A picture speaks much :

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What to do with Organized sector?

The organized sector must be used to grow the sector-specific strength of the trade in the economy. They should analyse the demand for a certain product in the global arena and then work on it! For example, the Netherlands is the leading dairy exporting country. So the organized sector should be sector-specific in its manufacturing and boost their exports. This is the only way to reduce the trade deficit and boost the economy as well.

What should Govt do?

Govt should inject more money into the economy by selling bonds. Govt should deviate as much as it can from its fiscal deficit target to revive the economy. Govt should Promote unorganized sector. Instead of reducing transaction cost for a company which turnover in crores, reduce transaction cost for a small company. A developing country that too like India can easily tackle the economic distress but all we have to do is work on it wisely. Our economy has a watchdog mechanism, it shows that it is going to have issues way before. NDA govt has experienced before in case of demonetization and improper implementation of GST itself. But govt is refusing to accept the real problem and declining to work on it!