Daily Management Review

The Booming Indian Economy Could Face Hard Times In The Near Future


11/15/2018




The Booming Indian Economy Could Face Hard Times In The Near Future
Despite India being the fastest growing major economy in the world, there are some teething problems with the economy according to economists.  
 
One of the problems is unequal distribution of prosperity that the country has been able to achieve. This can turn out to be a major challenge for Indian Prime Minister Narendra Modi facing the prospect or elections in 2019 and one who had swept to power in 2014 on a promise of inclusive growth.
 
"The Indian economy has shown sustained strong growth under the Modi government, with GDP growth of around 7 percent every year in fiscal 2017-18 and similar growth momentum forecast for 2018-19," said Rajiv Biswas, Asia Pacific chief economist at data firm IHS Markit.
 
A large part of the income of the country is going "to the top 10% and top 1% of the population" according to a report in 2018 by international nonprofit Oxfam. On the other hand, while the 2018 Gini coefficient for wealth in India rose to 0.854 from 0.83 in 2017 and 0.804 in 2011, there has apparently been a growth in inequality too according to Credit Suisse's Global Wealth Report. According to the Gini value, the closer it gets to 1.0 for a country, the greater us the inequality in wealth distribution in its economy.
 
"On most indicators, India is now among the countries with the highest level of inequality. But the analysis also shows that unlike most countries which started with high inequality, inequality in India has continued to rise," Oxfam said. "In the context of the acceleration of growth rate of Indian economy, the rise in inequality raises issues of the distribution of gains from the growth."
 
Bringing back black money or illegally acquired money which has been stashed away in foreign banks was one of the poll promises for Modi in 2014 when he had said: "I will bring back every rupee stored away in foreign banks and ensure it is used for the rehabilitation of the poor."
 
One the major measures in this regard was the demonetization of the 500- and 1,000-rupee notes in 2016 to tackle the problem of so-called black money. The Modi government had hoped that illegal money stored in those currencies would become redundant and hence illegally amassed wealth would reduce in the country. 
 
However after more than two years of that decision, there is a division among experts about the success of the measure. 
 
"A major negative for PM Modi on the policy front was the demonetization debacle, with a poorly thought-out plan (which) was hastily implemented and created economic chaos for several months," Biswas said.
 
There was a loss of an estimated loss of 1.5 million jobs during January through April 2017 after the demonetization announcement according to data from the Centre for Monitoring Indian Economy.
 
"India is largely a cash-based economy. Many small businesses and people are cash dependent. Many ordinary Indian citizens lost their jobs due to demonetization. All while the billionaires with huge amounts of unaccounted money stashed away their money electronically," Ghosh said.
 
Another mile stone in the Indian economy was planted in 2-17 with the introduction of the Goods and Services Tax (GST). Apart from aiming to increase the tax base of the country, introduction of GST was also aimed at reducing illegal transactions.
 
Prasenjit K. Basu, a Singapore-based economist and author of "Asia Reborn: A Continent Rises from the Ravages of Colonialism and War to a New Dynamism" said: "previous governments could not muster the political courage or will to implement this vitally important but politically challenging reform."
 
But there were criticisms of the move – specifically about the market and trades and businesses being not ready for the transition. Slow GST processes reportedly hurt exporters as they are entitled to refunds.
 
"The GST policy was not implemented with the needed infrastructure in place. What would have taken other governments three years to gradually implement was rushed in India within months — and that, too, to a less educated population," said Ghosh.
 
Creating jobs was another of the poll promises of Modi, promising creation of 10 million jobs every year if he came to power. .
 
But that has not been the case so far because there has not been a steady improvement in the labour market conditions. In October this year, the rate of unemployment in India reached a two year high.
 
"Around 7.5 million young Indians will join the working age population each year over the next three decades, creating a tremendous policy challenge for the Indian government to generate sufficient new jobs to avoid rising unemployment and social unrest," Biswas said.
 
There are also allegations that the condition of farmers in the country has not changed for the better. Agriculture still is a major contributor to the economy of India. It was not until this year that the Minimum Sale Price (MSP) of some farm products was increased. Many allege that this is because of the impending elections.
 
In short, the new government that comes in power next year to run the fastest growing major economy of the world would have some tough challenges to meet.
 
(Source:www.cnbc.com)






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