Relevance : GS Paper III
Context
Is Indian economy slipping into a great recession?
India’s economic growth estimates
- RBI has talked of a slowdown to 6.9% for the current fiscal year.
- ADB and IMF have cut growth forecast for India to below 7 %.
The reality
- The rate of growth is much less than 5%.
- The investment rate has hovered at around 30% for the last several years.
- NITI Aayog and the RBI have admitted that there is a slowdown.
Impact of recent policy decisions on economy
- Bank mergers will have little impact on the immediate problem of the slowing economy.
- The package for the automobile will also have little impact since the problem did not originate there.
- The announcement of a transfer of ₹1.76 lakh crore from the RBI to the government will only cover the shortfall expected in revenue.
So, where does the problem originate from?
- Unorganised sector has been in decline since demonetisation.
- It was further hit by the Goods and Services Tax
- This sector is pulling down the rate of growth of the economy.
Why growth projections are higher than the actual?
For the estimates, basically data for the organised sector are used — like in the case of mining, banking, hotels and restaurants, and transport. Thus, the official data only represents the organised sector.
Conclusion
To estimate the actual growt, data from the unorganised sector need to be used. If this is taken into account, the current rate of growth is much less than 5%.
