Economic slowdown?

Indian Economy, no doubt is passing through a sluggish economic growth since 2017 as compared to earlier years, although Indian Economy is still showing positive growth at the rate which may not be considered as very slow, if we go by the global economic growth standards.Over the past few weeks, Finance Minister Nirmala Sitharaman announced several measures to tackle economic slowdown. These steps have come after India's GDP growth in the first quarter of FY20 slowed to 5 per cent--the lowest in 25 quarters or in six years.

Since it is capital formation, or investment, that drives growth in the economy, investment is an immediate source of demand as firms that invest buy goods and services to do so. It also expands the economy’s capacity to produce. Indian investors have also become wary of the slowing economic growth as major companies, especially from the auto sector, have been posting huge dips in profits and even losses in many cases. Not just domestic investors but Foreign Investors are also pulling out money from the Indian market. FPIs have pulled out a net amount of Rs 5,900 crore in August even after the government announced a rollback of enhanced surcharge on FPIs.

Although, a concrete plan to address the problem is being developed in consultation with Prime Minister Narendra Modi. However, a section of the industry and many economists have criticised the government for not being prudent enough to read the distress signs and for treating the slowdown as temporary and transient.

The government needs to spend more on rural areas. Increasing rural people’s incomes can drive up the consumption demand, which in turn will boost the industry. To create more demand the Government needs to spend more in rural areas, construction sector and the unorganised sector.any fall in consumption expenditure, as and when it would happen, would escalate the crisis even more. If consumption spending falls, then output and employment levels also fall since consumption expenditure directly impacts the other two. As a consequence, the economy would stagnate, and prices deflate. Lower prices, if unable to recover the costs, would halt the operations of any firm and would initiate the layoff process. This, in turn, reduces earnings further. Hence this vicious cycle keeps.

Here we need bold move from finance ministry and PMO to revive economy.