The sad story of Indian Economy

In July’19, when Modi Govt came back into power, the returning Prime Minister Narendra Modi made an announcement of India becoming a $5 trillion dollars economy by 2024.
With the current GDP size of $2.9 tn, the dream of becoming a $5 tn Economy widened many many eyes.

The first question is, is it even achievable?

Source — The Hindu business
Source- TOI

Can we even reach a $5 tn mark?

In the last decade, India’s average GDP growth has been a little over 7%. This is a ‘decent’ level of growth when compared with other big economies but it is not even close to enough if we wish to reach the $5 tn mark by 2024.

India’s GDP Growth rate — Source- TradingEconomics

A 7% annual growth is good. But are the numbers trustworthy?

Post demonetization, India delivered a phenomenal GDP growth rate of over 8%, which was highly doubted by economists as demonetization had ‘badly affected’ the unorganized sector and MSMEs which mainly run on the cash economy. Where economists were speculating a hit of 2%, it came out to be blooming 8%. This is when the doubts over GDP figures strengthened, and the official GDP figures started to lose the credibility

What went wrong?

The economy of a country is driven by many factors. i.e. Investment in the market, creation of multiple jobs creation which leads to the high purchasing power of end customers, expenditure goes up, more goods/services are sold, manufacturing goes up, more investment comes in. It’s a closed cycle, where every factor is inter-dependent and drives the economy together.

The cycle of an Economy

Poor Investment led to poor growth?

We have observed that one of the after-effects of demonization is a slump in foreign investments. While many Foreign Portfolio Investors (FPIs) have lost faith in the ‘volatile’ state of Indian economy post demonetization and, many major FPIs already ‘pulled’ out their money from the India markets.

Poor Investment: Poor employment?

Oh yes! A poor investment always leads to poor employment.

How bad is it?

Usually, our unemployment rate used to be 2–3% but as the graph shows the current unemployment rate to be 8.45%, it is both alarming and deteriorating.

But? What if more people are seeking jobs, which is why employment rate is less?

I wish that was the case. But, unfortunately, data suggests that the number of people seeking jobs has been going down and despite that, the unemployment rate has crossed an 8% mark.

Okay. What about the expenditure pattern? Any impact there?

As I said above, an economy is a closed cycle. Less investment leads to lesser jobs, lesser jobs lead to less income, lesser income leads to low purchasing power which leads to lesser household consumption.

Just like last time, Govt Junked the report citing various reasons.

This is too much. What now?

The bottom line is simple, investments have been on their worse, fiscal targets won’t be met, the employment rate is an all-time low, expenditure has gone down to its lowest in the last few decades.
And Govt is doing one thing if not all. Rejecting all the official reports and figures which are citing the same story of the country.

  1. The market desires more and more investment to be fed in.
  2. Banking sector to be revived and infused with capital
  3. More jobs creation to enhance the purchasing power of the common man

Politically deprived.