However, a quick look at economic indicators suggest that, industrial production has been struggling for over a year and a half. The industry witnessed some recovery, in the middle of FY19 but it was a temporary phase. The markets remained sluggish, resulting in dismal performance of the economy in the Q4 FY19 and Q1 of FY20. The growth of core industrial segments have decelerated and in some instances, like crude oil production it even de-grew by 6.9% in May 2019. The Reserve bank has been playing its part for the revival of economy with frequent reduction in repo rates which fell from a high of 6.5% in Aug 2018 to 5.75% in June 2019, a reduction by 75 basis points.
Further, the trade balance was negative in the last 4 quarters, except for some positive signs in April 2019. Foreign investment flow which witnessed an all-time high of $8.5 Bn in August 2017, reduced by more than 50% to $3.7Bn in March 2019. Some analysts attribute this decline, to the governments push, of the “Make in India” policy and also the increasing trend towards barriers to global trade.
Also, consumer demand and consumption has retracted, which is reflected in declining car and two wheeler sales, which have dipped continuously, since Jun 2018, having de-grown by 20% in April 2019. Even the FMCG sector declined by 1% in 2018, wherein essential consumables like, soap and Atta saw a drop in demand of 0.33% and 2.46% respectively. The story of the agriculture sector is not much different when viewed along-with industrial segments. Also, a quick glance at tractor sales, which de-grew by 14%, tells us of the inactivity plaguing the agrarian economy.
Another cause of concern, has been the rising NPA’s and failure of NBFC’s. Having created an asset/liability mismatch the non-banking financial firms are facing dire liquidity crunch. Some experts ascribe their failure, to the inherently flawed business model of NBFC’s. While the NBFC’s struggle to survive, the failure of some of them may auto clean the shadow banking system. However, this may impact the MSME sector which relies heavily on NBFC’s for financing, resulting in lower growth in the coming year.
Apart from the above, some other challenges which need to be addressed by the government include, creating jobs. The unemployment rate has been the highest in four decades and reached 7.6% in April 2019. The average annual agriculture GDP has been 2.9% in the past five years which is much lower than the 4.3% rate achieved in the preceding five years.
Although, several sectors are experiencing growth hurdles, the economic momentum has not been lost. The saving grace, has been the continued spending by the government on infrastructure projects, which have been driving the economy.
The government plans are being drawn around bridging the urban-rural divide with a strong focus on providing basic infrastructure facilities to all citizens. In July 2019, a budget of 100 lakh crores spread over 5 years, was announced towards meeting these objectives. Few sectors, which are expected to benefit the most include railways, which has been allocated a budget of 50 lakh crore till 2030, the Pradhan Mantri Gram Sadak Yojna with an estimated budget of 80 thousand crore. The power sector and highways are also on the priority list of the government, attracting billions of dollars in investment. With an intent of inclusive growth, implementation of structural reforms and creation of favorable policy framework, the government is expected to drive economic growth and leap forward as the world’s fastest growing economy.