The main reasons behind the slowdown were global factors and domestic factors such as a sharp decline in consumer confidence and a negative central government fiscal impulse.
The slowdown story of India is not new as it started as early as January 2018, which was even before the IL&FS crisis. The main reasons behind the slowdown were global factors and domestic factors such as a sharp decline in consumer confidence and a negative central government fiscal impulse, Prachi Mishra, Chief India Economist, Goldman Sachs, told The Indian Express. A fall in the central government spending to GDP, coupled with other funding constraints contributed to the slowdown, she added. She further added that in the view of Goldman Sachs, the slowdown is about 2-2.5 percentage points relative to the early 2018 phase.
On the economic revival at present, Prachi Mishra said that she is optimistic about it as she believes that the series of interest rate cuts will eventually feed into growth going forward and the moderate fiscal impulse provided in Budget 2020 should also be supportive. Forecasts based on the government’s fiscal stimulus and an uptick in India’s current activity indicator are also important reasons behind her optimism.
Reforms in land, labour, privatisation, and export promotion were in the top priority but little improvement has been observed in these areas. “I think there has been some progress on each, but not to the extent that can take us to the accelerated reform scenario that we had envisioned two years ago. This is not only about this slowdown, but it’s also about the longer-term slowdown, compared to say, the average of 2004-2011 and 2012-18,” Prachi Mishra said.
Meanwhile, in FY20, the budgeted target for privatisation was 0.5 per cent of GDP, but it ended up at 0.3 per cent. However, for FY21 the target has been significantly increased to 0.9 per cent of GDP. Prachi Mishra said that clearly what the markets are looking for is a more credible plan, concrete timelines, and specific steps on how this would go ahead.