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Indian economy at crossroads

Indian economy at crossroads

The rate, at which the Indian economy dipped in the Q-1 of the 2017-18 fiscal, is simply under the weather. GDP indicator of April-June fell to 5.7 per cent from 7.9 per cent in the corresponding period last year. Though the Finance Minister Arun Jaitley has his own justification for this slowdown, nobody even knows how to find the ways that would restore momentum before the tailwinds of low inflation and affordable energy prices start reversing direction. Jaitley says that as the government had announced to implement the new Goods and Service Tax (GST) from July 1, the manufacturers started clearing their stocks right from three-four before the date, which enhanced the trading and stopped the manufacturing. The Reserve Bank of India, in its recent industrial outlook survey, had cautioned of not being very optimistic in Q2 about demand conditions across parameters and especially on capacity utilisation, profit margins, and employment. If the sector-specific trends are any indication, manufacturing expansion in gross value added (GVA) terms had loosened to a near stall at 1.2 per cent – from 5.3 per cent in Q-4 of the financial year 2016-17. The RBI had admitted that morale of the consumers had also dipped down in August this year.

The continued slump in private investment is one of the primary issues worrying economists. The arithmetic is simple: Without growth in the private investment, the GDP growth would be a mirage. And, the growth cycle of the private sector will not head higher, unless the GST effect fades. The government needs to bring confidence back to small-scale industries, most of which have been decimated by demonetisation and further hit by GST-related issues. Now, the million-dollar question is was it only the rollout of the Goods and Services Tax that disrupted the economy? It is an open fact now that demonetisation put a hard blow to an economy heavily reliant on cash. But, it might also bring positive changes in the Indian economy. Miracles apart, a turnaround in the Indian economy is almost impossible before the next Budget and unless small-scale industries are encouraged to do more business, wealth creation and solid job gain would remain a distant dream. The government officials must quickly fix those parts of the GST that are putting small companies and exporters out of business. And, if the government succeeds in clearing the bad loans without giving chances to defaulters – always eying to give the slip citing loopholes of the law, no wonder Modi may emerge as an international economic manager.


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