Describe the nature of the current ‘economic slowdown’ that India is experiencing and how it’s different from the previous economic slowdowns that India has experienced.

Economic slowdowns aren’t something that India has only started experiencing since 2014. Since India gained its freedom from the British, the country has experienced numerous episodes of ‘economic slowdowns’ from 1961-62 to war-induced 1965-66 and 1971-72 to 1972-73 to the infamous 1990-91 to 2002-03, 2012-13 and the current one from 2018-19.

The economic slowdowns experienced by India till the 80s were caused by factors like wars, droughts causing rural depression, Balance of Payments pressures (BOP) related issues, foreign exchange shortages which further caused damage to domestic industries which relied on foreign inputs or expertise imports, war-induced austerity and shortages in the backdrop of Sino-Indian war caused the 1st economic slowdown in the early 60s . Consecutive droughts and a (BOP) crisis leading to the 36.5 percent devaluation of the rupee in June 1966, likewise, precipitated the second downturn, similarly all the other economic slowdowns after that were also caused by droughts or wars or a combination of both. 

After the LPG reforms of 1991 and with time the role of agriculture in the economy began to decline as compared to the mighty service sector.  As a result, the economic slowdown of the 90s and the last years of UPA regime were caused by a bad performance on the fiscal and external economic fronts. The economic slowdown of the early 2000s was caused by a combination of the Asian financial crisis and US sanctions of India after the nuclear tests in Pokhran.

Compared to the earlier slowdowns this one is radically different-

India is currently in a very strong position politically, the only other politician who can be compared to Prime Minister Modi in popularity is PM Indira Gandhi. Unlike the Western world, India is experiencing a remarkable political stability.

The problems that were plaguing the previous regimes 90s and UPA government are not plaguing this government, food inflation is under control, the foreign exchange reserves are at an all-time high and while the fiscal deficit still has room for improvement it’s still in a relatively good position compared to the UPA era. 

Unlike the early 2000s era slowdown, this slowdown isn’t caused by external factors like the price of oil, sanctions by foreign governments, wars or financial crisis. 

The heart of the current slowdown is in the twin balance sheet problem (TBS)- massive debts accumulated by private sector during the mad investment years of late 2000s and early 2010s and the accumulation of NPA by Public Sector Banks. The failure of the government to contain the problem and allowing it to spread it to other sectors like Real estate companies, NBFCs, power, steel along with the poor implementation of GST and measures like demonetisation which have decimated the rural economy the most only deepened the problem. The current slowdown to be summarised is a ‘Self Inflicted Wound’.

Published: December 3, 2019 | Modified:October 15, 2020

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