India’s GDP contraction to -23.9%: REASONS BEHIND- India’s economic decline may soon be developed into a nagging crisis. Our growth rate has never been this low in the last 16 years. Our country promised to be raised as a powerful developing country is now looking at its plunging GDP. GDP elevated merely by 5%, as mentioned in the reports. The GDP as compared to last year has only elevated to about 8%. There are several reasons why our GDP has fallen down so steeply. These include factors such as the decline in the investments, demands, and farmer’s financial crises affecting the agricultural sectors of India. Other factors such as private consumption hitting a low point etc.

Here is the list of reasons behind India’s GDP Contraction to -23.9%:

1. Plunging rates of demand

India GDP

The major factor behind the growth of any country comes from demand. It is only when the demand for services and products increases the production has to elevate consequently. Hence the need for labor also increases and so does the employment rates. With most of the countries population, working as an employed worker in a company. The country possesses more potential in terms of growth. This simple change in demand can cause a ripple in the economy of a country and this is what has happened with India. In the last quarter, demand accounted for an overall 56.7% of the whole of India’s GDP. This percentage has fallen and now stands at 27%.

2. Agriculture- based sector

India GDP

Agriculture contributes majorly to the Indian GDP. Since India is an agriculture-based country it makes quite a considerable amount of revenue which boosts our economy. Our agricultural-based sector has a hand in 15% of our GDP and 50% of our employment comes from this sector as well. Farmer’s plight has taken a huge toll on this sector. Farmers’ financial conditions are worsening despite the establishment of various schemes by providing them with some relief, however, there are not many improvements.

3. Fall in the private consumption

India's GDP Contraction

The level of consumption has an indirect effect on the GDP of a country. When the consumption of a good or service increases so does the demand and as a result, the country’s GDP faces a positive upturn. Consumption is responsible for over 55-58% of our GDP. There has been a steep drop recorded in private consumption from the Indian population. Expenditure in relation to consumption has dropped from 7.2% in the March quarter to 3.1% in June.

4. Slowed investments

 

The drop in the investment seen this year is the lowest recorded in the last 16 years. A steep drop of around 79.5% from April to June 2019. Industries booming has slowed to the level that the investments made this year, which is the lowest point since September 2004.

5. Manufacturing Sector

India's GDP Contraction

The industrial production this year has experienced a large contraction in this August to September quarter as compared to the previous year. As a result, the manufacturing sector has taken a big hit. Just about last year, the manufacturing sector was one of the most expanding sectors with its growth accounting for 12 percent and now has dropped down to 2.8-4.6 percent. The manufacturing industry has been dealing with slowing down investments in the durables and non-durables which has shaken the industry to its core.

A major turnabout has to be made in this industry if India was to prevent India’s GDP contraction. Major sectors have taken a hit and as a result, the Indian economy has majorly suffered. Construction is one such sector where the industry dropped down to 3.3 this quarter and 8.5 percent from 2019. Additionally, the implementation of GST has caused major inverters to suffer from money loss as their returns are not yet cleared.

6. GST implementation

India's GDP Contraction

Goods and Services Tax (GST) has been a beneficial step for the Indian economy. With the help of this new policy, collecting tax. However, GST implementation has not been that smooth. It is difficult for the traders to receive their returns back which affects their business and limits their investments.

Sectors that are facing serious growth decline

The manufacturing sector is one sector that has affected India’s GDP the most. As compared to the previous quarter growth of 10.7 percent, the manufacturing sector has only expanded to 5.3 percent. The word year for manufacturing in the last five years. From a 7.4 percentage expansion, the industry has only expanded to 3.1 percent. The overall output has been very low. The construction sector is another major player in the slowdown of the economy. growing merely by a 2 percentage. The services sector has not done that bad and grew by 8.7% as compared to the 9% it expanded in the last quarter. The agricultural output has too not been very optimistic similar to some of the other sectors.

Remedy for the Indian Economy

As a remedy for our potential economic crisis, Finance Minister Nirmala Sitharama listed down several steps that could be taken in order to cure our ailing GDP. Nevertheless, the Indian economy slowed down considerably and saw the lowest point in the last 6 years. Due to a significant fall in the Indian economy, the International Monetary Fund (IMF) is preparing to reduce the growth estimate for India according to IMF’s chief economist Gita Gopinath. According to the IMF, should go for easy monetary policies in order to raise the growth levels to some extent. Some of the other suggestions which the IMF has made include, increasing the personal income tax collections and remove exemptions. Additionally, it says to lower down the minimum requirement for taxpayers and elevating the contributions by high earners.

Measures

India's GDP Contraction

Due to India’s GDP contraction, Declining growth has been creating several difficulties for India. India has faced similar difficult situations in the past however, it has been resilient enough to bounce back stronger in each scenario. Measures such as Goods and Services Tax (GST), “One Nation, One Tax, One Market,” and the steps are taken to control the flow of black money, has only been implementing to work for the benefit of the nation and to care for its economy. Other decisions such as those which prevent the issues of Non-Performing Assets and improvement of the banking sector. Our Finance Minister Nirmala Sitharaman has asserted that the GDP may have gone down nevertheless, the Indian economy will never go down to the extent of recession.

What lies ahead

The upcoming quarter is expected to grow and the Indian economy may come to a point of balance. However, it is subjected to the condition of how well and how far the various sectors and companies stand back, rising from the declining growth rate. In addition to that, it also depends on whether the companies would be able to handle and implement GST procedures and clearances well.

According to NITI Aayog Vice-Chairman Rajiv Kumar in between July and September economy may return to 7%-7.5%.  Indian economics are holding on to how hopes for the next quarters. The need to work even harder now to bring back its growth to a better state as our current financial position may cause India obstacles in the future which are bigger than what we are facing now. Now let’s see what new policies would be implemented to be able to spruce the Growth of the companies economy.

 

 Also Read: India’s Population Growth Rate In this Decade

Anubhav Kumar Das

Anubhav Kumar Das

Anubhav is the owner of Forever Pieces. He is a published author and poet. He is a part-time freelance writer and maybe found strumming the guitar for gigs on festive weekends. Besides all these, he is also an exhibited artist and photographer.

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