Tackling Economic Challenges for the Indian Government

Based on a cursory internet search, it’s evident the Indian economy is gradually leading itself towards an economic shutdown. For instance, an article by the Economic Times states that, “The four major engines of the economy — private investment, exports, private consumption and now even public investment — have stalled or are sputtering”. With an influx of news articles on the increased protests across the nation against the CAA and NRC, the gradual slow down of the economy can be an even bigger set back for the government if there isn’t any mandatory action taken in quick and large measures. The ruling party has a history of taking abrupt, sweeping decisions, and the pressure builds ten fold on what the government will do next in order to channelize the country’s resources well, especially considering the approaching state of the economy is already being compared to that of the 2008-09 financial crisis. 

However, it isn’t wise to compare the economy to that of the earlier times. Today, the government finds itself in a curious pickle wherein private spending is drastically reducing in the automobile industry, and at the same time, people aren’t saving money. This is due to the fact that majority of the population is spending money on travel, food, and online shopping. This means the mining, utilities, and manufacturing industries make up for approximately 31% of the GDP, which are not industries the Indian economy traditionally relies upon. Hence, if the government takes the route of reducing it’s repo rate, i.e. the rate at which commercial banks borrow money from the central bank, and then increases its public spending, the chances are unlikely for it to sustain the lack of spending in the economy. Especially since the former finance secretary, Subhash Chandra Garg, believes there isn’t any fiscal space in the expansionary budget of the country.

While the government was relying on the festive season to increase consumer demand, and therefore spending, they are still missing the mark by focusing on the supply-side of the operations, and not identifying what would create demand within the population. Another bandaid solution provided by an India today article is that by focusing on real estate/ construction, there can be a decline in the ever-high unemployment rates of the country. However, when people have low spending power, buying of houses is likely the last priority for the general masses. 

As always, the solution lies somewhere in the middle. The above suggested quick-fixes are crucial for the economy to transition from a recession period into a trough, without actually approaching a state of depression. However, the long term impacts can only be seen by understanding the unique spending pattern of millennials, boosting the export industry, and subsidizing industries in innovation and technology.