India's economic growth slumped to an over six-year low of 6.5% due to slower consumer demand and private investment amid deteriorating global environment, prompting many global agencies to cut India's GDP growth for the year 2019-20. In October19 monetary policy review RBI had sharply cut it’s economic growth projection for this fiscal to 6.1% from earlier of 6.9%.
People need to have cash in their hands. However, record-high unemployment has severely affected the supply-demand ratio in India. This is key reason behind the economic slowdown. The government has to come up with a plan to increase wage growth; which would be possible only by injecting more liquidity into the system. Despite the bank mergers and re-capitalization, Indian banks are far from recovery, with non-performing assets (NPA) at staggering Rs 8 lac crore!
The NBFCs which are key lender to Micro, Small & Medium Enterprises continue to face liquidity crunch and show no signs of recovery in the near future too. To tackle the slowdown, revival of MSMEs are needed, which would create employment across sectors. It is high time the government focuses on fixing the liquidity crisis, which has choked lending to most MSMEs, and reducing the tax burden on individuals and companies.
Indian economy slowed in 2017 due to "Demonetisation" and introduction of “GST”. Nearly 60% of India's GDP is driven by domestic private consumption, government spending, investments, and exports. Merchandise exports dipped 1.1% in October19 from the same month a year earlier after dropping 6.6% in September’19, amounting to a total value of USD 26.4 billion in October’19. Consumer prices rose 1.09% compared to the previous month, up from the 0.55% increase in September19. The increase was largely due to more expensive food and beverages, which, as a category account for over half of the weight of India’s consumer price basket.
Since India has a vast informal economy, barely 2% of Indians pay income taxes. According to World Bank, to achieve sustainable economic development India must focus on infrastructure, agricultural and rural development, removal of land and labour regulations, financial inclusion, spur private investment and exports, education and public health, public sector reform-selling “Navratnas” by way of disinvestments is not the only response.
Nearly 70% of India's population is rural whose primary source of livelihood is agriculture, and contributes about 50% of India's GDP. Govt. should focus on this sector, which has potential to become the major exporter of food products of the world.
Despite India holding world's seventh-largest foreign-exchange reserves worth $440 billion; suffers from high national debt with 68% of GDP, while its fiscal deficit as per 2019 CAG report is 5.85% of GDP!
In the times like these business enterprises have to create long lasting anchors to remain healthy going concerns. We have to eject out of non-profitable activities, stay focused only on the core ones and identify the areas where we can go sleek in the cost. We have to build businesses which are rationalized and vibrant in structure, low on Opex- operate on low ‘cost to income ratio’, less manpower intensive and more Tech Driven, which would build efficiencies and effectiveness at enterprise level. It’s time to relook our products, processes, sales and marketing plans to ensure that they bring maximum revenue with reduced cost.
As Warren Buffet says- ‘If you buy things you do not need, soon you will have to sell things you need’. Therefore, as individuals we have to save every penny by restricting our needs and certainly curtailing our wants. In the times like these, do not lend/borrow, stay sufficiently covered with life, health and general insurances, create alternative sources of incomes via. rentals on our properties, investing in the financial instruments which are well sanitized against repayment defaults, diversified and offering decent ROIs.
The long-term growth perspective of the Indian economy remains promising due to its young population and corresponding low dependency ratio, healthy savings and investment rates, and it’s increasing integration into the global economy. The government has recently announced a slew of measures, including cut in corporate tax rate, capital infusion into public sector banks, setting up Rs 25,000 crore fund to boost realty sector, among others, to boost the economy.
However, for India to become a 5 Trillion $ economy; we would require structural changes, and policy decisions which are in concurrence with the demands of the industry to fuel growth, and are also in consonance with the inputs from economists, pegged at global standards. Note, we still do not have any corporate which features in top 100 list of Fortune 500 or in Forbes; so lot of work still in hand at the level of government, corporate and every citizen.
Go conservative till the time changes for better.
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