Indian Economic Slowdown

By BYJU'S Exam Prep

Updated on: September 13th, 2023


As per data released by the government, the Gross Domestic Product (GDP) growth of the second quarter of the year 2019-20 is at 4.5%. It is currently at a six-year low mark. In the second quarter of the previous year, the GDP growth stood at 7.1 per cent. It has continued its downward spiral for the seventh consecutive quarter.

Different GDP forecast figures for 2019-20 by different agencies are as follows:

Sr. No.


Estimated figure for FY 2019-20


RBI (In 4th Bi-monthly Monetary Policy)



World Bank






Moody Rating Agency



About Gross Domestic Product

Following are indicators of Slowdown in Indian Economy:

  • A major indicator is low GDP rate. It is slowest since 2013.
  • Crisis in the automobile sector. There is a 30% drop in production by the top five firms in India.
  • Goods and Service Tax collection dropped by 6,227 crores.
  • A decline in saving and investment rate.
  • Rupee depreciated to cross ₹72 marks, it is the worst monthly loss in six years.
  • Drop-in industrial output and manufacturing activity compared to last year. Production in eight core industries grew at only 1.8% in January 2019.
  • Gross Fixed Capital Formation (GFCF) as a percentage of GDP has declined from 56% in FY15 to 36% in FY19.

Reasons for slow growth:

  • According to RBI, the slowdown is cyclical rather than structural.
  • Automobile sector crisis because of the slowdown in demand for passenger vehicles, higher fuel prices, higher interest rate and credit unavailability.
  • There is a sharp decline in consumer demand.
  • High unemployment rate left people without any source of income
  • Demonetization has impacted cash-based rural economy.
  • Structural reforms like the introduction of GST has caused a fall in revenue collection. Small businesses face difficulty in filing their returns.
  • Public sector lending has impacted grossly because of huge NPA, prompt corrective action against six public sector banks.
  • NBFC crumbling after IL&FS collapse added to the liquidity crisis.
  • Real estates, construction and infrastructure industries are in deep trouble.
  • Weak global economy and trade war environment.
  • Decline in agricultural growth because of rising input cost, low prices of produce and low public investment.

Steps taken by the government to revive the economy:

  • Corporate Tax rate cut from 30% to 22% without surcharges and cess and from35% to 25% including surcharges and cess for domestic companies. The effective tax rate has reduced to 25.17%.
  • Recapitalization of banks by infusing Rs. 70000 crores to raise liquidity.
  • RBI reduced repo rate by 135 basis points over the last nine months to raise aggregate demand for credit. However, it translated into a mere 29 basis points reduction by banks.
  • Government has announced a special window for the real estate sector so that it will trigger construction activities.
  • Incentivise given for exports and sops for MSMEs has announced.
  • Rollback of the surcharge imposed on foreign portfolio and domestic investors.
  • To boost demand government is thinking to cut the private income tax rate.

Way Forward:

  • Main drivers of the economy are government expenditure, private consumption, investment and exports will revive aggregate demand.
  • Credit flow to industries: even after efforts by RBI to cut interest rates, banks have not transferred them to customers.
  • The government must revive the positive spirit in the economy by creating confidence among private entities.
  • Infrastructure development will have a multiplier effect in stimulating private investments, employment and aggregate demand.
  • Revival of the rural economy: people need to provide jobs through schemes like MGNREGA. Alleviating buying capacity of the rural population is the need of the hour.
  • Increasing agriculture growth by rolling out of new APMC act, market reforms, doubling farmer’s income, increasing farm to non-farm income to 70:30.
  • Attracting FDI, labour reforms, improving ease of doing business.
  • Rationalising GST structure, simplification of online filing of returns and educating small businessman about it.
  • Comprehensive tax reforms in direct and indirect taxes.
  • Increasing India’s participation in the global supply chain by boosting manufacturing, exports.
  • Disinvestment of inefficient and inoperable PSUs and PSEs as recommended by NITI Aayog.
  • Fast-tracking the process of NPA resolution through Insolvency and Bankruptcy Code.
  • Bank governance reforms as suggested by P.J.Nayak committee.
  • Building social capital through public investment in education, health and skill training.
  • As RBI has identified new drivers of growth namely Fin-Tech and digitalization must be promoted.
  • RBI has also suggested the implementation of Integrated Policy Framework of IMF that would integrate monetary rates, exchange rates, macroprudential and capital flow management policies.

What needs to be done to achieve the target of $5 trillion economy by 2025:

  • GDP needs to grow faster than the average of 7.5 per cent in the next five years.
  • To ensure a commensurate rise in purchasing power, inflation need to be contained at 4 per cent.
  • In the upcoming five years, the fixed investment rate need to increase from 29 per cent to 36 per cent.


India should apply a multi-pronged approach to revive economic growth. Measures taken by the government in setting up capital buffers and stabilizing the effect of NPA has instilled confidence among investors. This is a positive sign for the revival of the economy.


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