Start (Slide 1 & 2) (Starting Abhinav and Shyam Continues

till PPP)
Good evening one an all present here. I Abhinav Agarwal and I Shyam Agarwal present you the
Lyceum talk on the topic “The Indian Economic Slowdown”.

The economy of India is characterised as a middle-income developing market economy. It is the

world's sixth-largest economy by nominal GDP and the third largest by purchasing power parity
(PPP).

INTRODUCTION (slide 3) (ABHINAV)

A decade ago, India was a rising star in the global economy, with its annual growth rate touching 8-
9% between 2003 and 2008, with price stability and modest fiscal and balance of payments deficits.
It was hailed as one of the fastest-growing large economies, nipping at China’s heels and reckoned as
the emerging global back office as against China being the world’s factory.

That boom is associated with a sharp upturn in the investment rate peaking at 38% of GDP in 2007-
08, with rising domestic saving financing of this investment. Unprecedented foreign capital inflows –
foreign direct investment (FDI), foreign portfolio investment (FPI) and external commercial
borrowings (ECBs) – at close to 10% of GDP supplemented domestic resources. A rising share of
short-term financial inflows caused concerns about financial fragility. However, as the capital inflows
were reportedly put to productive use, the criticisms against the inflows were muted. The ‘Dream
Run’ was also a debt-led growth with bank credit to the private corporate sector (PCS) burgeoning at
an unprecedented pace; a large share accrued to big business and politically connected firms. These
resources went into infrastructure projects such as roads, ports, coal, and thermal power plants.
Public-private partnerships (PPP) was the preferred mode of investment in infrastructure as the
Government cut down on public investment to adhere to fiscal orthodoxy in line with the
Washington Consensus that was the guiding star of economic policy.

The Global Financial Crisis in 2008 upended the boom, though it affected India only modestly for two
reasons: (i) its stricter financial regulations and (ii) relatively large and closed domestic markets.
After a brief dip in 2008-09, India, thanks to accommodative monetary and looser fiscal policies (a
concerted effort by the Group of 20 countries), witnessed a V-shaped recovery that lasted until
2011-12. Quantitative easing (QE) by advanced economies meant renewed capital inflows into
emerging markets in search of better yields (that is, higher returns), until the wake-up call of the
‘Taper Tantrum’ (in May 2013) – when the US Federal Reserve hinted at raising interest rates – took
place, reminding India of the perils of fickle capital inflows.
Aftermath Boom (Slide 4) (SHYAM)
As the boom petered out at the turn of the previous decade (2011-12), a revolt against cronyism and
capitalist exploitation of land, labour and scarce natural resources came out into the open. The
judiciary played its part in putting an end to these exploitative relations. There were massive
protests across the country against land acquisition (in Nandigram, West Bengal, for instance), there
were court cases against corrupt business houses for getting scarce natural resources at allegedly
throwaway prices (2G, for example). Despite the credible record of economic progress, the
perceptions of corruption and cronyism did the government in (The Economist, 2014).

The aftermath of the boom

By the middle of the 2010s, the euphoria about reforms got muted with economic growth distinctly
lower than in the previous decade; domestic saving, investment, and capital inflows likewise trended
downwards. IT exports were tapering off as the US imposed taxes on outsourcing and because of
technological changes. Inflation, however, ruled high on account of international oil prices, and the
balance of payments (BoP) deficit became precarious for a while.

Decelerating output growth affected the earnings of corporates and hence their ability to service the
enormous debt they had accumulated during the boom. Corporate bad debts got translated into the
banking sector’s non-performing assets (NPAs) as firms could not repay loans, restricting banks’
ability to offer new loans.

(SLIDE 5) (ABHINAV)
Here’s Video which will make us understand better.
Slowdown Of Indian Economy (SLIDE 6) (ABHINAV)
Moving Further. The GDP growth of Indian Economy has touched the six-year low in the first
financial quarter of April-June 2020. It touched 5.8% growth in January-March, although in nominal
terms India’s GDP grew by 7.99% which is also lowest since December 2002. Key sectors bearing the
brunt of Indian Economy slow down are Agriculture, Automobile, Real Estate, FMCG among others.

The $100 billion automobile industry that employs 370 lakh people and contributes 12% to the
national GDP, is suffering from huge slow down. Around 3 lakhs jobs are lost, Sales have gone down
and the automobile industry appears to be going in reverse gear.

The official data released by the National Statistics Office (NSO) confirm that. Weaker consumer
demand and slowing private investments are the two key factors behind the Indian Economy Slow
Down.

Eight core sectors have registered negative growth of just 2.1% in July, compared to 7.3% in the
corresponding month last year. According to the Centre for Monitoring Indian Economy (CMIE), the
overall unemployment in India has now touched 8.2%, with a high urban figure of 9.4%.

FPIs have pulled out a net amount of Rs 5,920 crore even after the government announced a
rollback of enhanced surcharge on FPIs. All the sectors need huge investments and remedial
measures to increase the demand to improve and take India out of the state of economic slowdown.

Indian Economy, no doubt is passing through a sluggish economic growth since 2016 post
demonetization as compared to earlier years, although efforts are being made to improve the Indian
Economy’s growth to achieve the rate which may not be considered as very slow.

Government, however, is of the opinion that India’s economy has a better growth rate amidst global
economic slowdown, if we go by the global economic growth standards.
Causes of Economic Slowdown (slide 7) (SHYAM)
1. Demonetisation:
To eradicate black money and also to encourage greater use of digital transactions, in
November 2016 the Government demonetised the large-valued currency notes of Rs.1000
and Rs. 500, accounting for 86.4% of the total value of the currency in circulation. It was
indeed a macroeconomic shock, devastating the informal/unorganised sector (which mostly
runs on cash transactions), employing up to 90% of the workforce and contributing nearly
half of the domestic output. There is near unanimity among economists about
demonetisation’s adverse effects. Many believe that it contributed to a contraction in
economic activity. Nor has the policy shock led to reduced usage of cash: as a proportion of
GDP, it is inching back to its pre-demonetisation level, as per the RBI Annual Report, 2018-
19.
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2. COVID-19:
From contracting by an unprecedented 23.9 per cent to plunging into a technical recession,
the trajectory of India’s economy saw a steep decline in 2020—primarily due to the Covid-19
pandemic. The staggering fall in its Gross Domestic Product (GDP) growth, which was already
in a slowdown before the pandemic, reflected the total suspension of economic activity in
the first quarter of this fiscal due to the series of lockdowns to stem the spread of virus.

The April-June quarter figure was not only India’s lowest growth rate since the country
started reporting quarterly data in 1996, but also worse than the 21.7 per cent contraction
reported by the UK economy in the June quarter—one of the sharpest GDP contraction
among the top 20 global economies. To put things in perspective, the Indian economy has
recorded an average of 7 per cent GDP growth each year since economic liberalisation in the
early 1990s. This year, it is likely to turn turtle and contract by 7 per cent.

Within the next three months, India entered a technical recession after GDP contracted for
the second straight quarter through September. Although the 7.5 per cent contraction in the
July-September quarter was a significant improvement over the 23.9 per cent contraction in
the preceding quarter, the Indian economy remained one of the worst performers among
major economies.

3. GST:
The ill-timed implementation, mismanagement and witless planning has caused rise in
inflation rate, rise in unemployment rate, and fall in growth rate. The GST collection dropped
to Rs.91,916 which served as an indicator of economic slowdown. This unjust feature of the
GST can lead to widening the gap between the classes which will not be good for the
economy. It resulted in a higher unemployment rate in the period of its implementation.
There was chaos as people did not know which rules to follow. The structure of GST did not
help either. In the words of World Bank, The Indian Good Services Tax is among the most
complex in the world. It has one of the highest tax rates and one of the largest numbers of
tax slabs. The World Bank's biannual India Development Update report mentioned 49
countries use a single rate, 28 use two rates and only five countries including India use four
rates It has four nonzero slabs- 5%, 12%, 18% & 28%.
No demand-No investment (Slide 8) (SHYAM)
The two sources of investment are private and public. The Private investment source is depressed as
of now due to the factors cited is difficult to revive unless some external force is applied for example
– tax sops, incentives for investment, creating demand for certain products through public funded
projects among others.

(Slide 9) (SHYAM)
Here’s what our finance minister had to say about it.

The Great Slowdown (Slide 10) (ABHINAV)

Seemingly India’s economy is facing a sever slow down. GDP during Q2 of 2019-20 slowed down to
4.5%. But the disaggregated data is much more distressing.

Here in the first graph which represents Trade and Taxes growth%, the non-oil imports, the non-oil
exports as well as the Direct taxes have fallen whoopingly during the year 2019-20.

On the second graph which represents Consumption and Investment Growth%, the IIP that is Index
of Industrial Production for capital and infrastructure as well as for the consumers have again fallen
tremendously during the year 2019-20

Structural Problems (slide 11) (Abhinav)

India never really recovered from the Global Financial Crisis. During the period of 2002-11, India’s
growth boomed, propelled by investments and exports which also boosted consumption an8
imports. Since then, all the indicators have dropped significantly, mostly by double digit.

The annual average growth of investment collapsed by 10%; credits to industry and profits by even
more. Real exports and imports have fallen by more than 12%.
In the following graph the red line represents the period between 2002-2011 and the blue lines
represent the period between 2012-2018. We can clearly see the difference between both the
periods resulting in the collapse of the Engines of growth.

Engines of Growth includes, investments, credit, corporate profit, government cons., direct taxes,
IIP(consumers), exports, imports and GDP.

Conclusion (Slide 12)

What we conclude, Is it a Temporary phenomenon.

The crisis is seen as a deep structural issue rather than merely a short-run one. Now the government
must play a key role and understand the economic realities and avoid adventurism in policymaking
and implementation. (ABHINAV)

How can India come out of slowdown?

The process of cleaning up and restructuring balance sheets of non-financial firms.

Improve monetary policy transmission. (SHYAM)