Brief Notes On Present Economic Recession in India (2019)

-* Dr. S. Vijay Kumar

The National Bureau of Economic Research defines a recession as "a period of falling economic activity spread across the economy, lasting more than a few months." A recession occurs, when the economy declines significantly for at least six months. People often say a recession is when the GDP growth rate is negative for two consecutive quarters or more. But a recession can quietly begin before the quarterly Gross Domestic Product reports are out.  Economic Recession occurs, when there will be a drop in the following five economic indicators: Real GDP, Income, Employment, Manufacturing and retail sales. The data comes out monthly. When these economic indicators decline, so will GDP.

The following  are the reasons for present Economic Recession in India:

Demonetization: In 2016, due to the demonetization of Rs. 500 and Rs. 1000 currency notes, there was a shortage of cash in our economy. Due to this, sales were down in different sectors of our economy. Hence, it resulted  in the decline of incomes of  different producers, which in turn lead to cut in wages and jobs. This in turn reduced the consumption. Demonetization also had more impact on the real sector of our economy.

GST: Due to some loopholes in GST, most of the businessmen  experienced practical difficulties in obtaining licenses, in filing returns and in paying taxes. This led to delay in the payment of taxes and also evasion. Because of this, government revenue had fallen, and it had negative impact on the growth rate of our economy.

Consumption: Due to decline in the consumption behavior of people especially in the Automobile and Textile sector and in Fast Moving Consumer Goods (FMCG) Sector like Soft drinks, processed foods, Biscuits, cosmetics, soaps etc.

NBFCs: In India, due to increase in NPAs (Non-Performing Assets) of various banks in recent years. Banks decreased offering of loans to the  public. Hence, public are approaching NBFCs (Non-Banking Financial  Companies) like Chit fund Companies, Shriram Transport Finance Company  Ltd., Bajaj Finance Ltd, Muthoot Finance Ltd. etc. In 2018, due to crisis in IL&FS (Infrastructure Leasing and Financial Services), there was cash shortage problem, hence it reduced loans to NBFCs. Hence, this had impact on consumption, which in turn slowed growth rate.

Fall in Investments: Due to the decline in our growth rate most of the corporate companies from outside and  inside India have reduced their investments. They are also hesitating to invest. This led to slow growth rate.

Public Expenditure: In order to restrict fiscal deficit,  public expenditures must be contained. But, in our country it is increasing year by year. Recent tax concessions to Corporates has reduced government revenue. On one side government revenue has fallen and on other side government expenditure has increased. This has led to the widening of fiscal deficit. This in turn,  had negative impact on economic growth rate of our country.

Fall in Exports: There is 6.57% fall in our exports in September, 2019. Though, not to this tune, but fall in our exports continued. Global recession, economic uncertainties between different countries, trade war between USA and China are some of the factors which had led to fall in our exports. As our imports have also fallen, there is not much impact on our trade deficit. Anyhow, fall in our exports has led to slow growth rate in our economy.

Industrial Growth Rate:  In our Manufacturing Sector, between 2014-15 and 2018-19, the growth rate is ranging between 2.8% to 4.6%. If we have to achieve more than 8% economic growth rate, our manufacture sector growth rate should be double digit.

Trade War: A trade war is the result, when one country retaliates against another by raising import tariff or placing other restrictions on the opposing country's imports. A tariff is a tax or duty imposed on the goods imported into a nation. In a global economy, a trade war can become very damaging to the consumers and businesses of both nations and also other economies. Internal and External factors are equally responsible for economic slowdown.  Especially, in the present globalization context it is cent percent true. India is no exception to this.

Global Recession: Delay in the implementation of BREXIT (Brexit is an abbreviation for "British exit," referring to the U.K.'s decision in June 23, 2016 referendum to leave the European Union), Trade War between US and China; Economic, Geographical and Political uncertainties between different countries are some of the causes for global recession. Global recession also negatively impacted our growth rate.

Head & Associate Professor (Retd.), Department of Economics, Kakatiya Government (UG&PG) College (NAAC “A” Grade), Hanamkonda, Warangal District (Telangana State). The author was a Member of Board of Studies, Kakatiya University, Warangal – 506 009 (India).