India’s economic gloom
September 9, 2019 - For almost half a decade, Indian Prime Minister Narendra Modi headed the fastest-growing major economy in the world. Now, the slowest expansion in six years threatens economic prospects.
In June, shortly after re-election, Modi declared that he wanted India to be a “$5 trillion economy” by 2024 when he once again faces re-election. This goal would, he said, be “challenging, but achievable.”
To boost the economy from the current $2.8 trillion to $5 trillion within five years, GDP will have to grow by 12 per cent a year. To put this in context, in the last quarter for which data is available, India grew at just 5.7 per cent in real terms.
During Modi’s first term the economy was boosted by a fall in crude oil prices from $99 per barrel to $44 per barrel between 2014 and 2016. However, in late 2016, Modi’s demonetisation -- the ban on high-value banknotes -- led to job losses, lower incomes and a drop in demand.
The introduction of a Goods & Services Tax (GST) in July 2017 led to job losses in the auto sector -- car sales plummeted by over 30 per cent in the year to July, the fastest drop in 19 years.
Next came the shadow banks’ crisis when Infrastructure Leasing and Financial Services Ltd (IL&FS) defaulted on $13.86bn (Rs99,354 crore) of debt obligations, triggering a credit crunch in late 2018. The U.S.-China trade war amplified the liquidity crisis.
India’s jobless rate rose to 9.07% in the week ended August 25, the highest unemployment rate since the first week of September 2016, according to business data group Centre for Monitoring Indian Economy (CMIE). The CMIE data are regarded in financial markets as more credible than government figures.
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