The world is witnessing the rock bottom with the downgrading economic growth to 3% in 2019, making it the slowest ever (after the global financial crisis). The nadir of the slowdown is steered by various factors playing a crucial role at a global level. With the US being the largest economy, the experts analyze the global financial conditions and expect a dip in 2020 affecting other major economies of the world, including India. The strings are also connected in the protectionist tendencies of the world economies and the U.S – China trade war further affecting the homeland.
The ongoing slump in the economy has impacted India in a way where the GDP of the country has decreased as low as 4.5% in the third quarter of 2019-20. Many factors are further contributing to the slowdown in the economy like credit crunch in the financial markets, subdued exports due to unhealthy world trading pattern, declined consumer consumption, unemployment creating a grave situation in the country. The repercussions of the slump go farther than this, leading to Increased taxes; higher rates of interests in fiscal policies; and, the increasing value of the rupee.
Owing to India’s large domestic consumption base, courtesy large population and widespread middle-income group, the effect of the slowdown can be reduced and overcome to a significant extent, if not fully negated. However, the challenges might seem to affect the country but as one of the fastest-growing economies with a vision to expand rapidly, India can tackle the slowdown in a constructive way and reduce the impact of it via the following solutions:
Increased expenditure is the key: It might sound ironic, referring to the context we are addressing but one of the most productive ways to reduce the slowdown is by preventing it from becoming a cyclic process. The government can attain it by increasing its expenditure and hence notching a level higher its investments and demands to keep the economy running well and fine.
Economic turnaround via MSMEs: Getting back on track and pulling the economy to the desired scale might take time, however, an instant measure which could be taken to benefit by focusing on MSMEs. Considering Micro, Small and Medium Enterprises contribute a major chunk to India’s economy, it is safe to believe that they would play a significant part to turnaround the economy as well. MSME boost would help us nourish domestic trading and being self-dependent to manage the commerce for domestic supply and demand, without many external interferences. Supporting and promoting domestic brands across sectors, the make in India drive and a mammoth MSME would be a smart idea to counter the external economic dynamics.
Banks coming to the aid: Focusing on providing sufficient fund availability with banks and NBFCs, and helping to revive the confidence owing to the default by IL&FS (Infrastructure Leasing & Financial Services Limited) could serve wonders in making the graph of the economy head up. The banking sector has to be well geared up to head on the gaps that may arise due to the slump.
Improve exports to generate to increase the global market share: The proportion of import v/s export plays a vital role in supporting the finance of the country. We get more external many pumped in India, while to this the global trade economics would play a major role. Some immediate excise relaxations or subsidies to make the trade easy would help India become an immediate choice over other massive manufacturing hubs attracting international orders, pouring in some additional external funds. Thus, some focus to improve exports would be one smart way equate the slowdown. It would also generate marginal employment opportunities in the sector, helping the situation.
Lower lending rates for business to flourish leading to increased liquidity in the market: Indian Reserve Bank offers a high rate of interest to the banks, making borrowing expensive. Slashing down on the rate would help banks to lend better and aid people to rely on banks for loans easier, hence eventually spurring the market traction and helping the economy.
Increase rural spend to generate consumer demand: A very simple concept to make the economy flourish is to increase the consumption demand. Focusing on rural areas would help increase the income of people residing there, therefore indirectly hiking the consumption demand from the rural sector. India’s strength is 90% of the unorganized retail, which is highly fragmented, yet extremely potential. This can be our gold mine!
Simplified indirect tax structure to cover all goods and services: Varied tax with complex structure has always been an existing issue in the country. GST has favoured the brand and consumers and proved to be a game-changer by simplifying the complete process. However, there are still some areas to improve upon to make the entire process easier. The government should consider the recommendations of the Direct Tax Committee to increase the disposable income of households and corporates. Additionally, the GST Council could further simplify the indirect tax architecture by moving to a three-tier slab of 6%, 12% and 18%, while expanding its ambit to cover all goods and services.
Further, taking the above-mentioned steps in the right direction will also help us stabilize the economy as we overcome the slowdown and also aid us in achieving the Finance Minister’s vision of making India a 5 trillion dollar economy. With the right intentions and significant measures, the country will prosper well and head to the path of growth and collective development and success.
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