Indian Economy and markets are all set to come across a change in their operation over the years to come. It is not just India, but a number of developing economies who will counter a change.
Growth is now difficult to base over globalization. A number of emerging market economies is facing the same issues.
India’s economic growth can largely be attributed to globalization. For past 15 years, globalization has come by as a model that has worked well for emerging economies.
At the present time, however, India is unsure about its growth driver. It is this uncertainty which has given rise to woes at a global scale. It is difficult to escape, and even India has been at the suffering end.
In India, there is a firm belief that the demand in the economy is always present. But this does not stand to be true in all cases.
This goes to show that all economic woes are not issues on the supply side. In fact, for the present times, demand side issues have been more prominent as compared to supply side issues. They are driving down growth at the present time from an Indian perspective.
With the cutting of spending across Indian households, economic growth now stands at its weakest pace in past six years. Sales of cars and utility vehicles are presently at a two decade low.
Domestic consumption is not necessarily driven by domestic demands. Global occurrences render an impact over local demand as well.
The right way ahead for the Indian economy is interest rates cut and reducing the cost of funding. It will help overcome the economic slowdown being faced by the Indian economy, as visible across a past few quarters.
A few of the experts also have the opinion that fiscal space has not been utilized to the best possible effect by the Indian government. It was oriented towards cutting down corporate taxes – a supply side solution for inducing a higher demand. This though is not a long term solution.
The way to boost consumption is to cut down indirect taxes. It must be accomplished in a time bound manner. As a resultant, spending is accelerated for households which in turn, deliver a demand boost for the economy.
Let us understand how the Indian economy currently is.
The growth has overall observed a slowdown. The non-agriculture and non government GDP is exceedingly close to the private sector GDP. This did peak in the December quarter of 2015, at 9 to 9.5%. But there has been a slowdown ever since.
Demonetization made it worse, and the quarters that followed demonetization made it worse still. Liquidity crunch and NBFC sector are some of the factors responsible.
Let us consider the top emerging markets across the world – Turkey, South Africa, Brazil and Mexico. They are all facing problems of a similar nature. So what has caused this slowdown? Through past 1 ½ or 2 years, the global business is in phase that was unknown for at least 50 years earlier. Rule based trading system and global trades have both received a pushback. They had been the lifeline of business since long. Global capital spending is lower as compared to what it used to be.
External demand, correspondingly, does not seem to be in a position to pick up the emerging markets. Emerging markets, such as India will have to define their direction of growth by themselves. Globalization may not be as strong a savior as it earlier was.
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