Home Global Village Modi’s economic reforms are slowing down India’s GDP growth

Modi’s economic reforms are slowing down India’s GDP growth

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A research report by the State Bank of India (SBI) states that India is currently undergoing a slowdown with gross domestic product (GDP) growth rate being affected, beginning second quarter of FY2017. The continued fall in GDP since Q2FY17 has raised the specter of whether growth slowdown is currently temporary. This along with a slowdown in demand and languishing capital formation shows that the Indian economy is in urgent need of a fiscal push now to shore up growth, says a research report.

Pakistan may find suitable economic opportunities for itself in the same manner Bangladesh found opportunities during Pakistan’s economic decline during the late 2000s

The Research note has come ten days after the ruling party BJP president Amit Shah attributed the slowdown — GDP growth slid for the sixth quarter in a row to hit a three-year low at 5.7 percent in the June quarter — to “technical reasons”.

A report on 13th September 2017 by Credit Suisse, Swiss multinational financial services holding company, described India’s economy to be in a period of “dense fog”. The report said structural reforms including GST has introduced significant uncertainties related to growth, fiscal health, inflation, currency and the banking system in the country, for the near term.

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Recent news from the Indian economy has been bleak. Economic growth has declined for six quarters in a row. Inflation has more than doubled in the three months since June. The current account deficit in the first quarter of the current fiscal year was at its highest level in four years as a proportion of gross domestic product (GDP).

A slowdown in Indian economy will both have global and regional repercussions. India is often touted as a shining example for political stability and economic growth among emerging economies

In perhaps the greatest shock to the ruling BJP party, its parent organization the RSS also spoke about the doom and gloom surrounding the Indian economy. The Rashtriya Swayamsevak Sangh — the ideological parent of Modi’s ruling Bharatiya Janata Party that works like a volunteer wing to ensure voter turnout during elections — has alerted the BJP of signs of a shift in the public mood over the government’s performance, though Modi still remains personally popular, according to a report in the Telegraph newspaper last week that cited unnamed RSS sources.

Modi government claimed that the lower classes of India will rise under its reign buoyed by the 10 million jobs per year to be generated by its policies. However, the stark data shows that Modi has been unable to achieve that target with the unemployment rate instead registering an increase during his rule.

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Many experts and economic figures such as manufacturers attribute this slowdown to Modi’s policies. The most significant being his demonetization and the more recent imposition of GST. The Demonetization occurred in November 2016 that removed 86 percent of currency in circulation, which contributed to growth in gross domestic product falling to the lowest since 2014 last quarter. The BJP government then implemented a nationwide goods and services tax on July 1, which is expected to benefit India in the long-run but for now, is causing supply problems.

The Demonetization occurred in November 2016 that removed 86 percent of currency in circulation, which contributed to growth in gross domestic product falling to the lowest since 2014 last quarter

However opponents of the GST state that all such benefits are overhyped and that the GST will extinguish the Indian Informal sector which is a major pillar of the Indian economy and provides critical economic opportunities for the poor. While many contend that India will face a “cyclical recovery” in the near future, however, this will not be a sustainable recovery unless the economy finds suitable investment activity.

A slowdown in Indian economy will both have global and regional repercussions. India is often touted as a shining example for political stability and economic growth among emerging economies despite several problems relating to poverty and corruption. There were talks of India replacing China as the world’s fastest-growing economy. However, the recent economic doldrums have put a lid on Indian economic ambitions.

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The report said structural reforms including GST has introduced significant uncertainties related to growth, fiscal health, inflation, currency and the banking system in the country, for the near term

According to the Economist, India has fallen behind China, Malaysia, and the Philippines and is tied with archnemesis Pakistan. It has also fallen behind its neighbor Bangladesh with its 5.7% growth contending with the latter’s 7% growth rate. All in all, the BJP government has been unable to arrest India’s economic decline for which they lambasted their predecessors. Instead, it seems that they have been instrumental in its decline.

Economic woes for India can be both a blessing and curse for Pakistan. Pakistan may find suitable economic opportunities for itself in the same manner Bangladesh found opportunities during Pakistan’s economic decline during the late 2000s. However, a shaken BJP can resort to more anti-Pakistan hysteria in order to divert the attention of the common masses from the economic uncertainties the face.


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