Not So Happy Diwali!

The Indian economy is in the grip of a most worrying slowdown and has stubbornly defied the government’s attempts to get it going. Even the festive season has belied hopes of a revival, but the government has a few cards left to play

- Shwweta Punj And M.G. Arun

Predicting the full extent of a financial crisis is tough, and diagnosing it at the right time, even tougher. But by now, most economists have come round to acknowledging that India is facing one of its worst economic crises in recent times. “The economy is doing very badly,” said Abhijit Banerjee, who won the 2019 Nobel Prize for Economics jointly with his wife Esther Duflo and Harvard’s Michael Kremer. “Demand is a huge problem.” The Reserve Bank of India (RBI) noted in its October 2019 Monetary Policy Report that ‘economic activity turned out to be weaker’ in the first half of 2019-20 compared to its own projections in April 2019, and that ‘the expected pick-up in private consumption and investment failed to materialize’. The RBI has also lowered India’s growth forecast for 2019-20 to 6.1 per cent from 6.9 per cent. Rating agencies and financial institutions such as the World Bank and the IMF have also revised their estimates—the World Bank, for instance, cut its forecast for 2019-20 to 6 per cent from 7.5 per cent, citing a deceleration in local demand and a weak financial sector.

Nearly all segments of the economy are fragile at the moment. The financial system is creaky, and the private sector is in the news for all the wrong reasons—among them poor corporate governance and runaway or money-laundering promoters—and even the government is flailing as it makes desperate attempts to get a hold on the crisis.