E India’s Economy Is Experiencing A Major Economic Slowdown

“To reverse the downward trend and to stimulate the economy, the Indian government has already initiated a flurry of initiatives, such as corporate tax reduction, financial sector restructuring, and interest rate reductions (RBI has performed 5 rate cut in 2019 alone). Nonetheless, the economic outlook for 2020 remains tepid. Rate cuts have not been as impactful as initially hoped, as banks are not passing the lower rate to consumers, and there are still challenges in reviving domestic consumption.” (Moneycontrol.com, Dec. 25, 2019)

The large Indian economy has been decelerating since 2016.

The IMF recently concluded that declining consumption and investment accompanied by falling tax revenue have arrested India's economic growth, which was one of the fastest in the world just a year ago.

While incomes in India have continued to increase in recent years, nonetheless since 2016 private investment and the exports have deteriorated.

As the second-largest county by population in the world, India has many structural economic problems, with poverty and inequality at the forefront of the challenges.

On the economy side, the creation of quality jobs, underemployment and income inequality remain serious challenges. India’s employment rate has also declined and is very low even by the standards of other emerging market economies.

Despite its high population density, housing prices are relatively high, due to high construction and transaction costs and stringent zoning regulations. At the same time, the housing market has an excess demand for low-end dwellings and an oversupply of high-end housing, especially in urban areas.

India’s real GDP annual growth rate was only 4.5% in the third quarter of last year, which represented the sixth consecutive quarter where growth declined. Three of India’s growth engines - private consumption, private investment, and exports all slowed significantly in the third quarter of 2019.

Even though incomes increased quite rapidly in recent years, private investment has lagged and recently slowed. To the extent that economic growth is occurring, it has recently been driven mainly by consumption. Industrial production and corporate investment have been weak due to financial sector problems.

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