The Macroeconomic Essentials

Narratives are key determinants of economic trends. When signs of an economic slowdown emerge, people begin postponing consumption purchases and investment decisions, further weakening consumer and investor confidence.

Recent measures announced by the government to reverse the economic slowdown, especially tax cuts, will improve the sentiment and support growth and jobs creation. But more needs to be done, as the Reserve Bank of India (RBI) has revised its GDP growth projection for this year to 6.1 per cent from 6.9 per cent it made in August.

The RBI’s Consumer Confidence Index shows a slowdown in consumption demand. The aggregate capacity utilisation has declined. More worryingly, while bank credit to commercial sector turned negative at Rs 1,287 billion in the first six months of the financial year (April-September 2019) against Rs 1,850 billion in the same period last year (Apri -September 2018), non-bank credit to commercial sector declined to Rs 2,197 billion against Rs 5,510 billion in the same period.

In good news, the current account deficit is expected to decline to below 2 per cent of GDP from 2.1 per cent of GDP in 2018-19. Ratings agencies expect that growing foreign direct investments, foreign portfolio investments and banking capital inflows will tip the capital account into surplus – of $70.0 billion – this year.

Key Issues:

  • How to put Indian economy back on a high growth trajectory?
  • How to ensure that the growth is job generative and spatially dispersed?
  • What measures should be taken for lifting business and consumer mood and reviving animal spirit?
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