THE PROBLEM OF DEMAND

The economic slowdown in India has a long history of over a decade, and stems from a severe long-term crunch of consumption demand in the economy

- BY R RAMAKUMAR, PROFESSOR, TATA INSTITUTE OF SOCIAL SCIENCES, MUMBAI

THERE HAS BEEN much discussion in recent months on the sharp slowdown of growth in the Indian economy. India's gross domestic product (GDP) growth is lagging optimistic projections and the estimate has been revised downwards by various agencies. Inflation remains high, which indicates the continued presence of supply bottlenecks, especially in food items. While most analyses and commentaries focus on changes in such economic variables in the short term, what they miss is that the present economic slowdown in India has a longer history of over a decade, and its sources must be located in the severe long-term crunch of consumption demand in the economy.

There is no doubt that India is a large market, but its size is drawn from its larger absolute population and not from a higher per capita income. Over the past seven decades after independence, the failure to Create a large home market was a historic failure of the Indian state as compared to neighbours like China or eastern counterparts like South Korea. While this has remained a stylised fact, what has been more worrisome is the sharp deterioration in a range of macroeconomic indicators after 2011-12. In my view, the present economic slowdown is the continuation of this longer crisis, punctuated only by the arithmetic revival of growth rates after the Covid-19 slump.