ANOTHER GRIM REMINDER

Context:

The economic slowdown of India, whether due to cyclical Downturn or structural factors.

Projections:

IMF projects India's annual GDP at 6.1 %.
World Bank projects India's annual GDP of 6%
Moody's rating agency projects it as 5.8%

Most of the multilateral Agencies call it a structural failure.

Reasons for structural failure :

1.Weak financial sector due to high NPA and high share of NBFCs on banks total credit. NBFCs has borrowed 40% of bank's credit.
It poses broad-based contagion risks.

2. Sharp slowdown in major economies such as the US and Eurozone has spill over effects in India. This scenario has lead to Protectionist policies and trade wars.

Eg: "America first policy" ; "Made in China 2025" policy

3. Poor domestic demand.

4. Poor Industrial growth due to twin balance sheet problem.

5. Poor agricultural growth rate due to poor reforms in the institutional factors like land and credit.

Solutions :

1. Financial sector reforms to solve problem of both banking crisis and economic recession
2. Codification of labour laws and land laws
3. Infrastructure creation
4. Increase the rural demand

Economic cycle :

It is the alternating expansion and contraction of the business or economy.

How the Economic Cycle Works :

The four stages of the economic cycle are also referred to as the business cycle. These four stages are expansion, peak, contraction, and trough.

During the expansion phase, the economy experiences relatively rapid growth, interest rates tend to be low, production increases, and inflationary pressures build. The peak of a cycle is reached when growth hits its maximum rate. Peak growth typically creates some imbalances in the economy that need to be corrected. This correction occurs through a period of contraction when growth slows, employment falls, and prices stagnate. The trough of the cycle is reached when the economy hits a low point and growth begins to recover.

Stages in economic cycle :

Expansion ,peek , recession ,depression, trough and recovery.

Source: THE HINDU

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