Though financial services company JP Morgan has predicted the GDP growth rate of India to soar to 6.7% in the next quarter of the present financial year and 7% in the overall financial year 2024-25, the experts believe, it will be difficult to recover from the slowdown it is going through.

Why Indian Economy Slipped?

The financial experts were upset, but not shocked when the GDP recorded a growth rate of 5.4% for the July-September quarter. It was the cumulative impact of a decreased industrial growth rate, reduced demand, less consumption, and bad performance of the FMCG and automotive sectors. The situation went from bad to worse as the exports and government investment plummeted.

Economic and political experts believe the RBI mandarins were either under the pressure of the government or pliant to their views of controlling the rate of inflation.

The Interest Rates!

The central bank has not reduced the interest rates for six quarters, thus, companies have less money to spend and the general public too has less money in its pocket.

Less availability of money meant less money for the firms to invest, less jobs, resulting in less purchasing power of the masses. The cumulative effect of this entire vicious circle resulted in a decreased GDP growth rate.

Indian Economy Stares At Stagflation?

Economic experts believe the Indian economy has not yet fallen to the state of stagflation, that is, a mixture of stagnation and inflation, a condition in which the inflation has come down to such a level that the economy has stagnated.

However, they apprehend, the second fastest Asian economy is staring at a stagflation. If the fresh impetus is not added, if there is no cut in the bank rates and if there is no public sector investment, the situation may go from bad to worse.

Economy Poised To Improve?

However, the situation is not as gloomy as it appears or some people may think. Buoyed on a good monsoon, the agriculture sector is going to perform much better from the present situation.

As the elections in four states are over, the governments have been formed or will soon be in place, the government expenditure too may pick up. Similarly, the union government is most likely to invest in a big way, as a bigger part of the budget stands unspent. Similarly, various schemes of the union government are most likely to boost the rural economy.

Will RBI Cut Rates?

The Reserve Bank of India will hold its meeting on December 4-6. It is under pressure to ease the interest rate so that the economy gets a kick start. However, some experts believe, the central bank may wait for the next quarterly meeting to announce a rate cut because the government does not want the inflation to go up now.

The Indian economy appears to be at the cusp of stagnation where the government as well as the private investment have decreased considerably, the bank rates have been managed in such a way that the inflation has been kept low artificially.

Will Govt Take Corrective Measures?

An artificially-managed low inflation rate suits the government as well as the policymakers, but it fails to hide the state of the economy for a long time and the veneer flies away with the first wind of troubles. The Indian economy may slip into the danger zone if corrective measures are not taken, and the corrective measures cannot be half-hearted decisions or the half-baked ‘jugaad’ to fix the economy for the time being.

The government must decide to take bold steps and the policy-makers must be ready to bite the bullet. Are we ready?