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T
he news from New Delhi at the end of November was unwelcome, though not unexpected: official figures showed that India’s economic growth rate had hit a new low of 4.5 per cent in the second quarter of the
2019-20 financial year. Although the year-on-year increase in GDP would still have
been beyond the wildest dreams of most Western nations, it was not the news Prime Minister Narendra Modi’s government needed at the end of a difficult year for the economy, which has seen it record its weakest performance in more than six years. Inevitably, perhaps, the decline from 8 per cent little more than
a year earlier to a figure below the symbolically important target of 5 per cent, was blamed by ministers on the global slowdown. But there has been a slew of other reasons, from weakening domestic demand to shrinking factory output; plunging car sales to a slump in both exports and investments.
FIGHTING THE ECONOMIC SLOWDOWN Throughout 2019, the government took action to try to stimulate the economy. The Reserve Bank of India cut interest rates five times during the year to their lowest since 2009 – and more easing is expected. Mr Modi spearheaded a drive over fiscal reforms that introduced a $20 billion cut in corporate taxes. Additionally, a special real-estate fund was created, banks were merged and the biggest privatisation drive in more than a decade was launched. Yet things have not markedly improved and economists are
wondering what further scope for executive action exists. “Domestic demand is displaying chronic weakness, with an apparent credit crunch afflicting wide swathes of the economy,” says Taimur Baig, chief economist at DBS Group Holdings in Singapore. “Production and sales are under pressure, and public spending is running out of room due to poor tax collection.” Finance Minister Nirmala Sitharaman accepts the economy is
faltering, but insists the government will make policy changes as required. “Every step being taken is in the interest of the country,” she told the upper house of parliament. “Looking at the economy in discerning view, you see that growth may have come down, but it is not recession yet; it won’t be recession ever.” Yet Indranil Pan, chief economist at IDFC First Bank in
Mumbai, is not convinced there are any quick-fix solutions. “The nature of the slowdown is broad-based, with consumption, as well as investment-oriented sectors, feeling the pain. The continuing poor domestic sentiment, along with the lack of any demand uptake globally would ensure that any recovery process would only be gradual.”
BARRIERS TO DEEPENING TRADE Even so, India’s ranking in the World Bank’s ‘Ease of Doing Business’ has improved markedly over recent years, rising from 142nd in 2014 to 63rd now, and Mr Modi wants the nation to be a $5 trillion economy by 2025 - something that would require GDP to grow by 8 per cent a year. A ‘white paper’ report published in November 2019 by the
Confederation of British Industry (CBI) and global professional services firm Ernst and Young (EY) said the UK was “a natural partner” in helping India achieve this ambition, pointing out ➲
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