Sunday 22 September 2019

May 16, 2019: India’s economy seems to be headed for a slowdown

India is the country where cows are worshipped. It is the world’s fastest growing major economy. It appears to be headed for a slowdown. India's next government will have a growth problem. As India heads towards the final phase of the general election and Prime Minister Narendra Modi seeks a second term in power, there is troublesome news. Economic growth slowed to 6.6% in the three months to December, the slowest in 6 quarters. Sales of cars and SUVs decreased to a 7-year low. Tractor and two-wheeler sales are also down. According to the Financial Express newspaper, net profits for 334 companies (excluding banks and financials) are down 18% year-on-year.

In March, passenger growth in the aviation market expanded at the slowest speed in nearly six years. Demand for bank credit has decreased. Hindustan Unilever, India’s leading maker of fast moving consumer goods, reported its weakest quarter revenue growth in 18 months. There is a decrease in demand and decrease in consumption. There is a decrease in urban and rural incomes. An excessively abundant supply of crop resulted in decreased farm incomes. One reason for the economic slowdown is the currency ban in 2016 – also called demonetization. This badly affected farmers. More than 80% of the currency circulating in India was taken out of circulation, resulting in a monetary shock. This type of shock made farmers take on more debts. This continues to slow down the agricultural sector.

Export growth has been near zero for the last 5 years. It is unclear what India’s consumption future will be. India’s rapid growth has been powered by its richer citizens. They are importing luxuries. A majority of Indians need more income to buy essential goods. The economy needs to be improved for the middle income people. A “middle income trap” is a theoretical economic development situation, in which a country that attains a certain income (due to given advantages) gets stuck at that level. India does not want to have this problem. If India produces what all Indians want to consume efficiently, and at affordable prices, then they could avoid the middle income trap.

Here are the World's Top 10 Largest Economies (going by nominal GDP measured in U.S. dollars):
1. U.S.
2. China
3. Japan
4. Germany
5. United Kingdom
6. India
7. France
8. Italy
9. Brazil
10. Canada

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