Reasons behind downfall of Indian economy- Nandika and Krutica (The Effect…
Reasons behind downfall of Indian economy
- Nandika and Krutica
The Effect of Demonetization
Demonetization has contributed a lot to the slowdown due to the entire chain of supply and demand being affected due to this reason.
Studies noted that demonetization has lowered the growth rate declined from 7.6% to 6.1%.
Experts suggest that a hit on farmer's income levels triggered the slowdown and the growth started to decelerate for most companies catering to rural markets.
It is also a fact that this has contributed to a freeze on investment by industrial houses and corporates who are now paying down the debt or postponing debt repayments to ensure that their present cash flow is sufficient to remain in business.
Introduction to GST
GST or the Goods and Services Tax on a nationwide basis led to the slowdown of the economy.
This is because this tax hampered with the small businesses by forcing them to withhold their inventory till they became a part of the GST network and accept the several rules that came with it.
Along with this, the inflation rate increased from 1.79% to 5.11%, which has largely affected consumption and demand of poor people in India.
The most important factor is that along with the slowdown in the Indian economy, there has been a slump in the rates of global exports as well.
This has led to a decrease in the number of investments being made as there is no guarantee that the money will come back with a higher interest.
Apart from that, the global slowdown has also been accompanied by a retreat of globalization which has resulted in FDI or Foreign Direct Investment being only in the areas of speculative finance and distressed assets purchases rather than into investments that help the Real Economy.
Retreat to globalization
The policies of Trump administration to remove zero duty
charge for 6.3 billion Indian goods have caused the
Indian economic growth to slow down at major rates.
Sectoral collapse has happened because of poor business decisions in banking, real estate, construction and lately in non-banking finance companies (NBFCs)/housing finance companies (HFCs). Now all these sectors are looking for stimulus packages to bail them out from their mistakes.
The Indirect tax base in India
India has a very small direct tax base( direct taxes deal
with income tax).Most of the taxes are indirect and are charged upon goods and services. As per analysis on the economic survey, 2015-16 the number of Indian voters who pay income tax should be 23% but the present scenario is 4 %.Because of the slowdown the tax growth has further decreased.
long term shift
The economic slowdown is a part of a long term structural shift where the economy is shifting from a high- investments era to a low investments era also from a cash driven economy to a digitally enabled economy. This can also be seen as the Real Estate sector has come to a grind in the recent months which has also lead to the downfall of economy.