Question: The $5 trillion economy looks a distant dream considering the current economic situation. Explain the reason for the economic slowdown along with the possible measures to boost growth situation of the country.
The Indian government has been aiming to make India a $5 Trillion economy by 2024 but the plans have received setback due to economic slowdown. This has impacted the growth rate of GDP, which is one of the most important indicator of economic health.
Possible reasons for Slowdown
- Economic reforms
The economic reforms undertaken by the government have been aimed for a longer term. On the shorter account, they have negatively impacted the economic growth by creating adverse effects on producers as well as consumers.
Ex: The GST law has impacted smaller business such as MSME and informal traders. Similarly, demonetisation was responsible for collapse of cash based business.
- Global trade wars
Major global economies like US and China have been involved in trade wars by imposing restrictions and increasing trade duties. This has resulted in global investors backing out from investing in emerging economies due to fear of adverse impact of the trade wars.
- Domestic consumer behavior
Domestic consumers have been reluctant to invest into newer ventures. Also they have been adverse to buying new goods due to fear of changing policies. This has resulted in production industries being stagnant and undergoing lower growth.
Ex: The policy of Electric cars has prevented consumers from buying old petroleum based automobiles.
Measures to Boost growth
- Reducing Lending rates
The banks have to be ultra active in order to revive the growth. The central bank has been cutting repo-rates, thereby reducing burden on consumer banks while lending to customers.
- Reducing Import bills
Indian domestic economy is highly impacted by depreciation of domestic currency. The depreciation in domestic currency is directly linked to trade deficits caused by excessive imports. Reducing import bills can stabalise economy upto certain extent.
- Confidence boosting goverment policies
The market investors and consumers need suitable policies to instill confidence. The recent move to reduce tax surcharges on FPI’s is one such step to attract foreign investments. The tax rebates offered to citizens can encourage them to utilise their earnings in a better way.
Thus, the aim of developing into a $5 trillion economy is not impossible but it needs immediate steps that can uplift the economy from its slumber. If reforms are suitably targeted, they can boost growth substantially.