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Facts about Major slowdown in Indian Economy

Facts about Major Slowdown of Indian Economy

Major Slowdown of the Indian economy in the last few years

India is undergoing its worst economic slowdown in the last few years, with the country’s construction, real estate, automobile and many other key sectors with overall consumption demand facing a significant and constant decline.

In the economic term this slowdown is called “Recession”, which means a business cycle contraction when there is a general decline in the economy. The slowdown or recession generally occurs when there is universal drop of spending due to the adverse demand shock[1]. This may be triggered due to varying circumstances like financial crisis[2], external trade shock[3], an adverse supply shock[4] or sometimes the breaking of an economic bubble[5].

Indian economy is majorly denoted as a developing market economy. The Gross Domestic Product (GDP[6]) in India was worth 2800 billion US dollars in 2019. The GDP value of India represents 2.31% of the world economy[7].It is the world’s 5th largest economy by Nominal GDP[8] and the 3rd largest by purchasing power parity (PPP[9]). According to the International Monetary Fund (IMF), on a per capita income basis, India ranked 142nd by GDP (nominal) and 119th by GDP (PPP) in 2018[10].

As per the economic experts, Government of India with an aim to acquire USD Five Trillion economy status, has to consistently achieve a minimum of 9% plus growth rate for the next 5 years by 2024. On the other hand economic data from ministry of statistics and program implementation reflect that the GDP growth of India is going down and varying in between 5% to 5.5% in the financial year of 2019-20. As per Center for monitoring Indian Economy (CMIE), eight key economic sectors have registered a negative growth of just 2.1% in July 2019, compared to 7.3% in the corresponding month of 2018 and the overall unemployment in India has now touched 8.2%, with a high urban figure of 9.4%.

Causes of Economic Slowdown in India

There are four key contributors to economic growth i.e. domestic consumption, foreign consumption (exports), private investment and government spending; certainly all are hit by the economic slowdown. The major cause of this problem is mainly the “supply shocks”, as in the last few years the major contributors to this problem includes demonetisation, stressed banking sector, GST Implementation and problems in agricultural sector due to climatic changes.

Capital investment drives the growth in any economy and investment is an immediate source of demand through public or private sources. The private investment sources are depressed now a days and are difficult to revive unless some external force is applied to it like tax rebates, incentives for investment, creating demand through public funded projects etc.

economic crises in indiaWhen there is no demand, supply has to be stopped, due to which production units go idle, leading to unemployment in labour force. It further reduces the income leading to less demand and further reduction in supply and ultimately stops the production.

The ease of doing business has received great attention from the current Indian government but the economy is getting worsen by each financial quarter. Labour market reforms need to be strengthen and share of manufacturing may rise if the labour market is liberalized.

As per the Indian government a concrete plan is already developed to address this economic slowdown problem but few sections of the industry and many economists have criticized the current Indian government for being prudent enough to read the distress signs and for treating this slowdown as temporary[11]. There is a strong need to bring the Indian economy and GDP growth rate on right track.

Effective ways to address this economic slowdown

Following given are the probable effective ways to bring the Indian economy and GDP growth rate on right and inclining track:

Government expenditure: Government needs to spend more to encourage investment and demand in the economy to overcome this economic crises. A prompt and instant boost without worrying much for consequences is needed by way of spending.

Weaker Indian Rupee: Even a weaker Indian rupee in due course will help in economic boost as stronger rupee is affecting the exports and overall business. Imports are on rise and are hugely affecting the domestic market share.

Lower lending rates (decreasing taxation): Cutting down the benchmark lending rates is needed to empower fiscal and economic expansion. RBI needs to cut the interest rates for banks to make borrowing reasonable for the business and encouraging investment.

Certainty required in business: More certainty in business is required. Businesses should be without unpredictable shocks like demonetization. As a major result of the recent demonetization, there is still an environment of uncertainty in the economy. This stops private sector investment and announcing new projects which supports development. There should be an environment of certainty that no such disruptive moves will effect the economy.

Improved banking sector and macroeconomic policies: The government has to take effective measures to tackle the problems of non-performing assets and improve the health of banking sector (both private and public). Also, by bringing macroeconomic policies, their forecasts can be used by governments to assist in the development and evaluation of stronger economy.

Increase in number of tax payers: India has a long-standing problem of not collecting enough taxes given the size of its GDP. It is much lower than developed or even developing countries with comparable GDP sizes. Increase in the number of tax payers through stiff government schemes and policies will help in generating public funds with government to increase the expenditure on development.

Spending in rural areas: Government needs to spend much more in rural areas as increasing rural people’s income will boost the consumption demand, which in succession will boost the economy. To create and increase the demand government needs to spend more in rural areas, unorganized and construction sector which are directly related to labour forces.

If the corrective steps are taken as mentioned above, Indian economy may come back on right track with a high growth investment of 9-10% as per the vision of current government. On a positive factual note; India had faced similar economic slowdowns in the past but had bounced back with a higher growth rate every time.


[1] Demand shock is a sudden event that increases or decreases demand for goods or services temporarily.

[2] A financial crises is a situation where some financial assets suddenly lose a large part of their nominal value.

[3] Trade shock means the gain or losses from a trade caused by changes in international pricing and sometimes due to the volume of goods and services that are traded internationally.

[4] A supply shock is an event which suddenly increases or decreases the supply of a commodity or a service.

[5] An economic bubble is a situation in which the asset/commodity prices appear to be based on inconsistent views about the future.

[6] Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period.

[7] and

[8] Nominal GDP is an assessment of economic production in an economy but includes the current prices of goods and services in its calculation.

[9] Purchasing power parity (PPP) is a term that measures prices in different areas using a specific good/goods to contrast the absolute purchasing power between different currencies.

[10] “World Economic Outlook Database, October 2019”. International Monetary Fund. Retrieved 15 October 2019.


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