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2019 saw the Indian economy in bad shape, India experienced one of its worst growth rates in the recent years. More concerning is the fact that basic indicators of the economy have been on the decline during the past few years, saving rates have declined and have been accompanied by a declining rate of consumption. These trends are major concerns for the Indian economy as they reflect major structural problems. The lack of consumption and demand is a major concern as it is an indicator of a stagnated economy that requires major structural adjustments which may or may not pay political dividends in the short run.
On January 9, the World Bank downgraded the growth rate projection of the Indian Economy for the financial year 2019-20 from 6.5 per cent to 5 per cent. In its latest 2020 Global Economic Prospects report, the World Bank cited a lingering credit weakness emanating from non-banking financial companies. This 5 per cent growth rate is said to be the World Bank's worst projection for the Indian economy in 11 years. Prior to the World Bank, India's biggest bank, the State Bank of India, had also projected a lower GDP growth rate. In its latest Ecowrap report, the SBI’s team projected a 4.6 per cent growth rate for the economy, much lower than its earlier estimate of 5 per cent. Bad news came from a third source, the Central Statistics Office, which released the advanced estimates of the National Accounts on Tuesday, January 7. The CSO said that the country's GDP would grow at 5 per cent (at 2011-12 prices) and at 7.5 per cent at current prices.
All these projections are dismal compared to how positive most rating agencies and financial institutions had been at the beginning of the previous year. The Data Intelligence Unit at India Today compared the previous and recent GDP growth rate projections for 2019-20 and found that on an average, the rates fell by more than 2 per cent in just a year. Between January and April the previous year, major financial institutions had projected a GDP growth of around 7 per cent. However, a few months later between September and November, the average GDP growth projection by these institutions fell to about 6 per cent. But from December 2019 onwards, the rating agencies and global banks have applied breaks with higher pressure, downgrading GDP growth to an average 5 per cent.
This continuous stumbling of GDP growth rates also raised the government's eyebrows. Ahead of the budget, Prime Minister Narendra Modi met top economists and experts at the NITI Aayog to discuss the revival of the economy.
Given the political structure of the Indian government, bold economic readjustments will always present a risky proposition for any government. While forecasts for the year 2020 are cautiously optimistic, the problems facing the Indian economy are evident, bold decisions will be required to revamp a stagnated economy.