Why India's Economic Growth is Slow ?

WHY INDIAS'S ECONOMIC GROWTH IS SLOW ?

 India is one among the world’s fasting growing economies. It had been touted as an economic and geopolitical counterweight to China. But recently growth fell down to its slowest pace in six years. Investment has weakened, and unemployment has risen. So what’s causing the slowdown, and the way can it's reversed? Between 2006 and 2016, rising incomes lifted 271 million people out of poverty, meaning the proportion of Indians still living in poverty has fallen dramatically, from around 55% to twenty-eight .

 Access to electricity has also improved. In 2007 only 70% of the population had access to power. By 2017, that grew to just about 93%. More recently, the Indian government constructed around 110 million toilets -- an enormous step towards better sanitation designed to prevent the practice of open defecation. it is a signature program of Prime Minister Narendra Modi, referred to as Swachh Bharat, or Clean India. All this development has been supported by a booming economy, but as lately , that expansion has begun to run out of steam. within the third quarter of 2019, India’s economic output grew by 4.5% - making it the primary time the country’s growth dipped below 5% since 2013. For context, 4.5% growth remains much higher than that of developed economies just like the U.S., 

But with 12 million Indians entering the workforce per annum , economists say the country needs annual growth rates to remain above nine percent to make sure there are enough jobs. So, what’s causing this recent slowdown? Well, officialdom argue turbulence in international financial markets is guilty . Political uncertainty and U.S.-China trade tensions mean confidence levels among investors and consumers everywhere have sunk.

 The United Nations has even warned that a worldwide recession in 2020 is now a ”clear and present danger.“ But back to India - many economists say the country's growth problems are literally self-inflicted. One obvious culprit is that the shadow banking sector. During the 2000s, India saw an investment boom. it had been fueled by state banks dispensing a load of loans for giant infrastructure projects. But a number of the businesses taking advantage of those loans couldn’t keep up with the repayments. 

That meant the state banks weren’t getting paid back and thus struggled to offer out new loans. to stay business moving, shadow banks stepped in. These financial institutions, which operate like ordinary commercial banks but don’t follow traditional banking rules, eventually made up an estimated third of all new loans nationwide. 

The loans played a pivotal role for the millions of small businesses and consumers who would otherwise haven't any access to credit. But in 2018, shadow banking giant Infrastructure Leasing & Financial Services, defaulted on its debt repayments.  It became harder for people to shop for expensive items like cars.

 That hurt India’s automotive industry, which is one among the country’s biggest. Last summer, the industry suffered its worst sales performance in nearly 19 years, and reports suggest tens of thousands of workers are laid off. The agriculture and construction sectors have also been hurting, with small and medium businesses being hit the toughest . 

The country’s percentage has been on an overall upward trend since July 2017, rising several percentage points to 7.7%. Higher unemployed peoples means consumers are buying less, resulting in the unfortunate cycle of slower manufacturing, production, investment and job creation. A survey from the Federal Reserve Bank of India found consumer confidence has fallen to its lowest level in five years. But Indians still have a positive outlook for the longer term , with most consumers expecting to feel more optimistic during a year.  Expecting better days ahead, many households have continued to spend,by removing loans and dipping into savings.

 Meanwhile, household debt has surged to 10.9% during an equivalent period. Critics say the govt in New Delhi has failed to identify these risks and hasn’t done enough to urge the economy moving again. The Federal Reserve Bank of India's former governor Raghuram Rajan recently blamed the shortage of serious reforms and a slowdown in investments since the worldwide financial crisis He also says the country must become pro-market, instead of just pro-business, to avoid costly government bailouts of failing sectors. 

But not all reforms are good to the economy. In 2016, Prime Minister Modi tried to clampdown on corruption, counterfeits and evasion by banning high value bank notes. In one night,the cash ban made 86% of all cash invalid. Three years later, many analysts say the policy disrupted the economy and did not achieve many of its original goals. In 2017, a replacement nuisance tax placed small businesses struggling and a few of them were forced to shut . 

In mid-2019, India's government introduced a controversial new tax on foreign investors. Consequently, India’s stock exchange suffered its worst July performance in 17 years. only one month later, the measure was scrapped. the govt has  refocused its efforts on the international trade and investment, and therefore the recent changes to the company rate could indeed help attract businesses and investors to India.

 But if the country wants to be a part of the world's largest supply chains, it'll need low and consistent tariff levels to encourage outsiders to take a position for the future India's share of the worldwide apparel market has increased only slightly within the past 20 years.