Reflections on the Dip in GDP Growth: Causes and Consequences

India's GDP growth rate has dipped to 4.5% from 5% in the last six years, marking the lowest in over a decade. This falloff is a significant concern for policymakers and citizens alike. In this article, we will explore myriad factors behind this decline and discuss its broader implications for the Indian economy.

Understanding the Dip in GDP Growth

The economic slowdown in India is not just a statistical anomaly; it reflects deeper structural issues. Over deregulation in 1991 played a pivotal role in setting India on the path of liberalization and growth. When the economy was liberalized, several controls were removed, and the rupee was devalued to reflect its true value. This led to a surge in exports and imports, particularly of capital goods, stimulating investment and economic activities. However, as we veered towards the global financial crisis of 2008, it became evident that uncontrolled economic growth could be perilous. The government responded with structural reforms, including the MGNREGA and others, to mitigate the adverse effects.

Structural Reforms and Their Impact

The reforms of the early 2000s included actions like the MGNREGA, RTI, RTF, and RTE, aiming to benefit the populace. While these reforms had a temporary positive impact, they could not sustain the growth dynamics of a large and complex economy like India. The government's attempts to address economic disparities through measures like loan waivers and telecom spectrum auctions were fraught with issues of corruption and inefficiency. Five years later, even the accusers themselves renewed leases at old prices, negating the intended impact of reforms.

Demonetization and its Aftermath

The demonetization of 2016 significantly impacted both small businesses and the broader economy, leading to a temporary economic shock. Coupled with the implementation of GST, which aimed to streamline tax structures, the economy faced a tumultuous period. Small businesses struggled to adapt to the new tax regime, leading to widespread disruptions. The economic downturn also saw a rise in scams and an increase in NPAs, leading to a reduction in corporate taxes and bank recapitalization.

Historical Context and Economic Phases

The Indian economy has been marked by several phases since independence, each influenced by electoral cycles and political shifts. From the early years of Congress rule to the 1966 transition to dynastic and dictator regimes, there was a marked internal rebellion and a decline in national spirit. The shifts post-1980s saw attempts to rekindle pre-independence unity, but these efforts largely failed. The economic collapse of 1988-91 led to a major government rescue, which brought about the economic liberalization of 1991-96. However, the same phase saw a stable but unstable Vajpayee government and a BJP-led stable period from 1999-2004.

The economic growth of 2004-09 was offset by the global crisis of 2009, leading to policy paralysis and a shift in the anti-incumbency trend. The 2014-19 period saw a majority government, but economic missteps led to a drastic decline in growth. The recent period has been marked by Hindutva-driven politics, a collapse of the opposition, and the economic impact of the pandemic, including the apparent divine retribution of the pandemic.

Factors Contributing to the Current Downtrend

The current economic downturn is a result of a combination of structural, political, and global factors. While the government's attempts to create a more equitable and efficient economy through reforms were well-intentioned, they have often been hampered by corruption, inefficiency, and political challenges. The demonetization and GST implementation, while aimed at rooting out black money and creating a more transparent tax system, had significant negative impacts on small businesses and overall economic activity. Additionally, the rise of divisive and aggressive politics, coupled with the global pandemic, have further exacerbated the economic challenges.

Conclusion

The dip in GDP growth is a complex issue with deep-rooted causes. It is crucial for policymakers to address both short-term economic challenges and longer-term structural issues. The economy is a collective endeavor, and every citizen's actions impact its trajectory. Understanding the historical context and current challenges is essential for crafting effective policies and ensuring a sustainable economic future for India.