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Last updated: 12 Sep, 2017  

Downturn.Thmb.jpg GDP slump: What to blame for it

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Bikky Khosla | 12 Sep, 2017

What is pulling down the economy? As per the estimates released by the Central Statistics Office on August 31, growth of the Indian economy, as measured by GDP, fell to a three-year low of 5.7 percent in the June quarter, against 7.9 percent in the same quarter a year ago and 6.1 percent in the preceding quarter. The figures have taken most of us by surprise. No doubt, no one was expecting a sharp uptick, yet few anticipated such a decline, and now economy watchers have turned their attention to read the signals from the dismal growth numbers and find out what lies ahead for the economy.

Demonetisation is one of the major factors most people are pointing at. While the Government holds the view that the slowdown has not much to do with the decision to demonetise Rs 500 and Rs 1,000 currency notes last November, critics argue that the move has come at a huge cost for the economy. According to former RBI Governor Raghuram Rajan, the cost of demonetisation was around 1-2 percent of GDP and one cannot say that the move has been an economic success. The Centre has argued that growth began to slow even before note ban and what has played the spoilsport is the implementation of GST from July 1.

It is worth a repeat that demonetisation hit the economy. Also, it would be unwise to overlook the disruptive effects caused by GST implementation. But the bigger question is: are these two shocks responsible alone for slow growth? Economists point out that a declining investment trend has been evident for some years. According to data available, gross fixed capital formation fell from 31.3 percent of GDP in 2013-14 to 27.1 percent in 2016-17. It is also a major concern that the household sector, which includes small non-corporate businesses, saw a sharp decline in fixed capital formation from 12.6 percent in 2013-14 to 10.8 percent in 2015-16. This trend needs to be reversed.

Poor export performance is another major structural weakness the economy has been suffering from. It was recently reported that the mid-term review of the Foreign Trade Policy, likely to be released this month, may provide relief to exporters reeling under the impact of GST. Also, scope of some schemes may be expanded. These proposals sound good, but are far from being adequate. Just addressing the short-term concerns or revamping existing schemes cannot solve the structural problems. Neither do all required policy interventions lie within the domain of the commerce ministry. Only a comprehensive and all-out effort by the Centre would get it done.

I invite your opinions.

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SJS RAVI | Wed Sep 27 10:21:55 2017
If One really goes deep into the reality of the situation, it is quite obvious that the percentages thrown about like 3.7 % etc are also from the same game i.e. fudge up. It can be seen obviously that the economy is in serious contraction. People who think of disruption as a tool to get to a milk white economy with nary a tinge of black are living in fool's paradise. By the time we get to see a milky white economy, most old hands will be dead and gone into oblivion. We will then see the green horns turning around a dead horse and find that the other side of the horse is also dead. What is the great idea in killing the existing and thriving businesses and putting all the eggs in the basket of Start up India etc How many start ups are successful in the world. The Handful which are, are not enough to bail out the economy. Demonetization and GST are the last nails in the coffin. The liquidity in the system has been sucked out fully. Many Businesses registered under GST do not have the money to file GST 3B returns in the second month (August) itself. Are we giving blanket clearance to banks to provide loans for paying GST? An unproductive tax in which Peter pays, Paul Takes away. The Govt is staring looking for crumbs of GST in value addition and from the last mile fool who has to bear the GST. So much fruitless work every one has to do leaving the core business to the winds. Why not have daily returns so that F Ministry can throw daily figures of 1000 / 2000 crore coming in.

Reduce income tax capital gains rate
Sanjay c | Wed Sep 13 16:19:11 2017
Reduction of income tax capital gains rate slab to 5% from 20% will boost economy. Majority people don't like income tax due High rate slabs. Demonetising and not reducing IT rate slab hurting economy.

Free Flow of economy for Entrepreneurship.
Dr Mrs Sushma Joiya | Wed Sep 13 13:39:42 2017
It is a well known fact that rate of GDP is directly proportional to entrepreneurship development which is being neglected by this Government. Manufacturing needs FREE FUND FLOW It is not understood as to why the financial agency or the Banks use their discretion to appraise those projects which are thoroughly examined for technical and financial viability by the task force committee headed by District Collector and presented by GM,DIC. It is needless to mention that both the DC and GMDIC are responsible Gazetted officers. Rejecting the recommendations of TASK FORCE COMMITTEE by a non-gazetted Bank Employ is totally an insult of Administration which has certified the viability of the recommended project. This process of Banks are demoralising the Start-ups and prospective entrepreneurs. In a nutshell it is pointed out that if every village has industries with FREE FUND FLOW the rate of GDP can be raised, employment opportunities can be increased and price control of FMCG can be managed. Ministry of MSME if activated can help in eradication of poverty thereby raising GDP to desired level. Today every village needs Industry to increase the rate of manufacturing in rural areas.

  Re: Free Flow of economy for Entrepreneurship.
Shilpi | Thu Sep 14 11:59:18 2017
I absolutely buy your opinion.

Disruption is necessary
Sanjeev Singhal | Wed Sep 13 13:37:06 2017
As Mr Jaswani has pointed out, the growth we saw earlier was the pumping in of Hawla money through P-Notes. The loot and consequent mess created by Sonia and Chidambaram required these tough measures. The graves train had to stop. In today's complex environment "more of the same thing" will not bring results. The world is changing and if we have to leap frog we have to take giant steps and that means disruption. If we need to better the living conditions for the sizeable population that lives below poverty line and give our teeming millions respectable living conditions disruptions is the key. Disruption and new paradigms that will deliver results in medium to long term are necessary. Short term difficulties will have to be faced. And we Indians deserve these short term hardships because we as a society have allowed the loot and plunder to take place and the old political regime carried on as an extension of the British rule. We frittered away the thirty years from early 70s till the 2000, when many South Asian countries, including China, were making rapid progress, we were mired in "elephant progress" due the ambitions of a dynasty that cold not look beyond itself and thought that India was their personal Kingdom which they could loot and plunder much like the British. To cover this gap we have to take disruptive steps today. And Demon and GST have probably had some impact on GDP but the bigger culprit is the global economic environment.

Failure to understand the mind set of Indian marketers
Sitaram Sharma | Wed Sep 13 11:08:26 2017
Tomato and onion rates touched too much all middle class and below totally compromised by not eating them but where as it is not shortage of these vegetables but controlled by mediators to take higher rates. Government is not able to tackle such things, Government successfully come out with demonetization and GST but failing to understand the mind set of Indian marketers & unable to control them. The reason behind the GDP today.

GDP Slump - GST
Ashok Misra | Wed Sep 13 11:02:46 2017
The unaware the HAVOC GST is making in the villages, who are primarily in HAND WORK industry, giving employment to all villagers (men, women, young ladies and men). The Govt. is charging their workmanship with 5% tax, GST. This is implying HIGHER COSTS for the FINISHED products. Is there anybody who will wake up the Govt. (sitting in air-conditioned rooms) ?

GDP slump: What to blame for it?
A.V. Chandran | Wed Sep 13 10:07:17 2017
It is quite obvious that sharing of GDP was there for the last more than two years wherein two third of Revenue is held with Private Sector and one third of Revenue is held with Govt Sector whereas in Expenditure Part two third is held with Govt and one third of Expenditure Portion is held with Private Sector! In short this type of reverse and mix theory is responsible for GDP slump thereby Central Govt is responsible for this worst lapse and growth of the Great Nation India! Am I right?

Non-stop slide at ground level
Mohan G Jaswani | Wed Sep 13 08:38:32 2017
As being in retail trade at grass-root levels I view the slump had started long time back with the anti-corruption agitation of Anna Hazare and from then onwards there has been non-stop slide at ground level due to slow down of flow of massive retail corruption money in the economy which was oiling and greasing the Indian economy since last 20/30 years at every levels of businesses which saw vulgar boom at all levels and fields of the economy the demonitisation of currency of high value and the GST regime has further aggravated the environment for all concerned leading to negative feelings at all businesses and spending habits at ground levels I view that the Indian economy and mentality is still very immature to absorb such innovative solutions being imposed by the government.

Poor economic performance
K. S.JAYARAMA | Wed Sep 13 08:36:27 2017
It is indeed the associated fear psychosis combined with the transition from black economy to white which has hit the internal consumption followed by slump in growth.

Bad Timings
DKS | Wed Sep 13 08:25:19 2017
Yes, there was a slow down even before demon. So the govt. should have hesitated - but it didn't for other (mostly political) reasons. The demon caused untold misery to many without any positive outcomes. On top of it and close on heels is the GST impl. which could have been delayed by a year or two for the economy to stabalize. But no. What reason the govt. had had in showing this urgency is not clear...

RAJESH MAKHARIA | Wed Sep 13 07:54:39 2017
Our government is disruptive. Great emphasis is on disrupting the current businesses and enforcing unpractical or very difficult policies down the throats of businesses at large. Government must focus on policy measures. mere stunts will not improve the economy. Rise in import barriers will not curb imports and if it does it will have a cascading negative effect on the economy. Merely banning imports will not help domestic industry.

Not note ban, but GST purely
Shyam Sundar | Wed Sep 13 06:40:13 2017
35 lacs have only paid GST. Remaining 20 lacs not yet filed returns. So how can we assess the financial turnover volume? Second note-bandi happened 9 months back !! No effect of note-bandi on trading after January.

  Re: Not note ban, but GST purely
Dr Mrs Sushma Joiya | Wed Sep 13 13:48:57 2017
Note Ban and GST has nothing to do with manufacturing. If FREE FUND FLOW is given to manufacturing sector the production could be increased to raise the level of GDP.

Dont want to Blame Government
HITESH S SINGH | Wed Sep 13 06:10:39 2017
Yes our GDP has fall three year low to 5.7 Percent because of Demonetization and GST Effect from 1st july . But this are the brave measure taken by the government to Fill all the loop holes. which will definitely increase not only Economy but also our standard of life.

Policy paralysis...
Chandrashekhar,A | Wed Sep 13 06:08:25 2017
I am from the EPC business. Iron ore mining (except captive mines of Primary steel makers) is locked down by Supreme court order. So in a recent visit to Orissa, Jharkhand, I saw many secondary steel units closed and abandoned. Others which are functional, are on the verge of closures.The govt is yet to form a clear policy on reopening of mines. Only 50 odd out of 250 coal blocks successfully e-auctioned.There are simply no takers.There are no mega projects in public sectors units like IOCL, BPCL. They are struggling to find a feasible process which can convert BS-IV grade directly to BS-VI and that too by 2020. Normally, each grade conversion requires project gestation period of 5 years. This is the decision of our great Mr. Nitin Gadkari.Meanwhile, govt is going on fleecing the public with Rs 80 per liter petrol. Why is,nt the extra money earned re-invested in Oil & gas projects? Thermal power projects have plateued. No new investment. There are takers for roof top solar projects.Subsidy issue is plaguing the solar projects.There is heavy job loss in industrial EPC business. Dont know when & how will this end....

Demonitisation After Effects
Farhan | Wed Sep 13 05:51:18 2017
I feel Demonitisation was a major set set back to our economy. Till now nobody can claim and logically prove any positive effect of demonitisation. All the machinery i.e. RBI, banks, workers, etc. were busy in changing currency and they were unproductive during demonitisation. Even the NRI's who returned after December 2016, were forced to stand in long queues and even then they were unable change old currency. Who have deposited the money in RBI in March 2017 were supposed to get new currency within a month in their account but they are still waiting. I feel, Until and unless the intention is clear and inclined towards betterment of the nation there won't be any positive outcome. This move of the Government was politically motivated to harm the other political parties and not to benefit the Nation.

GDP slump: What to blame for it
Praveen Mathur | Wed Sep 13 05:45:33 2017
Dear Respected Sirs' The policies of the Government should be eased out with immediate effect, so that our Businessmen's can work free, with peace of mind. Any kind of Burden / harassment, stops the growth instantly. And the Business establishment, doing / giving good / volume business, should be rewarded simultaneously, which boost there potential. All good work should be appreciated. And most important, Corruption should be checked, secretly, at each & every step, without hindering the work environment. Please look into it very seriously. It will definitely work like a magic/miracle. Thanks & best regards.

Economy disaster
Jahabwalla | Wed Sep 13 05:34:26 2017
Govt is in a serious overdrive mood trying to prove the impossible.demo and now the gst.our lives revolves around gst filling which half the time is down. Small traders who never felt a computer are in the midst of sea with no power. The non sensical RCM IS SO Absurd. And the small Exporter has the added burden of paying IGST.Absurd.

GDP slump
Manjeet singh | Wed Sep 13 03:42:12 2017
Due to 80% population uneducated, unskilled & not taking a step to develop industrial infrastructure all move of govt will fail.

Rajan | Wed Sep 13 03:05:50 2017
Nothing surprise to GDP declines, even after demonitization and GST all sectors business slowed down, same time currency of 2000 notes disappeared and not in market rotation.mainly real estate market totally collapsed and further automobile industry also going to be collapsed . These two markets are major in India relatedly effecting GDP . GST implementation is good but it is created bottle necks , market flow rate dropped . Market control totally failure . For small example when tomato and onion rates touched sky all middle class and below totally compromised by not eating them,where as it is not shortage of these vegetables but controlled by mediators. Government is not able to tackle such things, Government successfully come out with demonitization and GST but failing to understand the mind set of Indian market. The reason behind the GDP today.

Indian economy
Shivananda | Wed Sep 13 02:32:41 2017
Going through all GDP May go down less then 4% next quarter. This will hit employment also badly.

GDP slowdown temporary
Manoj Singla | Tue Sep 12 23:56:18 2017
I appreciate both Demonetisation and GST Implementation.

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