Budget 2020: Economic slowdown cyclical or structural? What are the top factors behind it? FE Survey

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Updated: Jan 30, 2020 9:53 PM

Budget 2020 India: The year-long slowdown in the Indian economy, which has been termed cyclical by the government and other economists, is now turning out to be deep-entrenched with a possibility of a recession.

 

Budget 2020, Union Budget 2020 India, Budget 2020 India, Budget 2020-21Budget 2020-21: The banking sector crisis has diverted attention and impacted the flow of funds.

Union Budget 2020 India: The year-long slowdown in the Indian economy, which has been termed cyclical by the government and other economists, is now turning out to be deep-entrenched with a possibility of a recession. The slowdown is significant as there are severe supply-side and demand-side issues, said eight out of the 13 economists and analysts polled by Financial Express Online. Further, sector after sector is facing a demand crisis, most of them said. “The slowdown has built up over the last 3 years on the demand side and the response has been on the supply side. Therefore, the slowdown is deeper than we thought with employment being the major issue and low investment the second one,” said Madan Sabnavis, Chief Economist at CARE Ratings.

While the economy has been impacted by many factors, experts are of the view that the demonetisation and banking sector crisis are the top two factors behind the current economic slowdown. With banks being stringent with NPAs, there was a push for deleveraging rather than investments within companies. “This contributed to the vicious cycle of low investments, downsizing, lesser demand, lesser revenue for the government, spare capacity and consequent lower appetite for investments,” said Ranen Banerjee, Leader – Economic Advisory Services at PwC India.

Three other economists expressed similar views that the banking sector crisis has diverted attention and impacted the flow of funds. “A large number of banks are reluctant to lend and the credit growth has slowed down. There is a need to improve the liquidity situation and the public sector has to take the lead in spurring demand,” said DK Srivastava, Chief Policy Advisor at EY.

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An economist, who did not wish to be named said that there are several internal factors such as credit shock that has contributed to the slowdown within the country. He further said that timely intervention with policies has not happened in the case of economic mismanagement. Resonating similar views on economic mismanagement, Indranil Pan, Group Economist, IDFC FIRST Bank said that for years the focus has been on the services sector rather than the manufacturing sector. “We need to fix the manufacturing sector issues so that growth revs up,” he told Financial Express Online.

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