Why is the Indian Economy heading towards Depression?

Before coronavirus pandemic, the Indian economy was struggling to grow. According to the official statistics, in
the first quarter of 2020, GDP was 3.1%, but during the lockdown, the Indian economy shrinks to 23.9% in the
next three months ending in June. Also, India’s performance is worst among G-20 country. While the USA
economy shrunk by -9% and the UK economy shrunk by -20%.


Indian government blame pandemic and the lockdown for the economic crisis. But the Indian economy is
struggling since demonetization, in 2016. According to the capital economist, Indian investment collapsed by
47%
compared to the previous year, while household consumption contracted by nearly 27%. Many
economists have predicted; it will take almost three years to recover from this economic depression.

Economist’s view regarding Indian economy

Shilan Shah, the capital economist said the second quarter should mark the low point for India’s economy, but
signs are indicating, the recovery could be slow, even though lockdown measures have been eased. The
continuous rapid spread of the coronavirus will dampen domestic demand said by Shilan Shah. This will lead to
higher unemployment as well as the failure of the banking system. In the last 5 months, 14 crore citizens have
lost their jobs. Small factories are closing due to lack of demand in the market. People are not buying non-
essential items which and as a result, leads to more unemployment and ultimately the Indian economy
crashes. Only the agriculture sector is growing.

India has never faced a sustained long-term downturn in economic activity since 73years of independence.
However, several economists say that the impact of the Indian economy situation is likely to be worse in
future.

The veteran economist Arun Kumar thinks Indian economy would be the first country in modern history to face
depression.
It would take at least three to four years to emerge out of it.

Surajit Das, assistant professor at JNUS center for economic studies and planning (CESP) gives his perspective
on this situation. the economist says, waggled growth will boost demand, and it is the only solution under this
situation. The government thinks supply-side interventions will save the day as more damage leads to more
output, profit and employment.

20 Lakh Crore Package to improve Indian economy

India’s PM Narendra Modi announced 20 lakh crore package
and promised, to improve the Indian economy.. But in this package, only 10% is direct cash. Most of it is in
liquidity form. Liquid infusion into banks is meaningless unless that money reaches to the Indian economy. The
lockdown planning in India is a failure. PM Modi announced a complete lockdown on 24 March 2020. It creates
chaos among people in India. Migrant laborers were suffering badly. Many laborers started returning to their

Impact

If we want to understand the impact of economic depression on Indian economy, we should analyze the
impact of the lockdown on 1.3 billion people.

GDP has its four parts.

GDP = Consumption + investment + Government Spending + (Exports – imports) where,  

  • Consumption = Good and services that we purchase.
  • Investment = Factory or business starts.
  • Government Spending = Government expenditure
  • (Exports – imports) = Net of export (i.e. we sell goods out of the country) and import (i.e. we buy goods out of the country)

India’s GDP falls due to the above values which shows negative growth. Change in mobility between 2019 and 2020 in %.

  • Financial Real Estate and Professional services fall to -5.3%.
  • Manufacturing sector falls to – 39.3%. Only Agriculture, forestry and fishing is showing positive growth in the Indian economy.

The private sector is cutting jobs and firing their employees. The government must spend money on people’s
welfare and employment.

If India wants to recover the Indian economy, they should make investments in Infrastructure to boost the
economic activity and it will lead to employment.

But what kind of infrastructure should India build?

Since the 2008-2009 financial crisis, it shows that South Korea directed nearly 70% of its stimulate towards
green measure, rebounded faster than other economics. India should also invest in renewable energy, like
rooftop solar.

India’s 90% of the economy belongs to the informal sector. Informal sector includes agriculture, and it gives
80% to 90% of employment. Many experts suggest that the government’s policy destroyed the informal sector.
The crisis in the informal sector started due to demonetization, GST and the lockdown. Informal sector
provides 40 crore jobs. But during this lockdown, around 2 crore people became jobless.

Opposition leader advises the central government to improve India’s informal sector. After demonetization,
NDA government introduced GST. It gave expected returns as big companies earned a huge profit with
recorded turnovers above the threshold of Rs 20 lakh. Especially trading firms service providers and micro-
enterprises general stores, tailors, cobblers, barbers, plumber’s masons, electricians.

What is the solution to improve the Indian economy?

For the Indian economy, the solution is supply and demand-side distribution. If people do not earn money,
they will spend less, and this will reduce demand. Many economists suggest, if India wants to revive its
economy then firstly, the government should increase its spending on consumers.

When consumers start earning, they will spend on non-essential products, and it will increase demand and
supply. India needs foreign investment. Direct investment should be permitted and encouraged in those
sectors which will significantly contribute to income generation, employment and net export income. This
stipulation should become a legal right without any state intervention as envisaged in (MAI).

I hope the information is communicated to you. Kindly give your valuable suggestions and feedback in the comment section.

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The cases of Coronavirus is increasing everyday. We are waiting for this pandemic to end. Do you want to know
when will it end?

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