On January 16, 2020, According to the ‘World Economic Situation and Prospects (WESP) 2020’ report released by the United Nations (UN), it has slashed India’s GDP (Gross Domestic Product) growth forecast for the year 2019-20 by 1.9% to 5.7%. Earlier in 2019,It had projected GDP growth rate of 7.6% for FY 2019-20.Key Points:
i.It has lowered the India’s growth rate to be 6.6% in the next financial year-FY 2020-21 from 7.4 % earlier. It has also estimate a growth rate of 6.3 % for the fiscal beginning in 2021,while the growth rate was 6.8% in FY 2018-19.
ii.3 major reasons for the reduction in GDP growth
Auto Industry: In 2019, this sector saw the slowdown., whereby the vehicle sales volume witnessed the fastest decline in 19 years. The auto industry records for 7% of the India’s GDP and 49% of the manufacturing GDP.
IIP(Index of Industrial Production):India’s industrial activity continuously at a sluggish manner due to the major steps like corporate tax cuts in September 2019. The IIP (Index of Industrial Production) rose by 1.8% in November 2019, after declining between August –October,2019.
NBFCs: One of the main reasons for the decline in GDP growth is the cash crisis of non-banking finance companies (NBFCs). The crisis came in September 2018 after the Indian infrastructure development and finance company,Infrastructure Leasing & Financial Services Limited (IL&FS) defaulted in debt payments.
iii.Retail inflation rate the highest highest in last 5 years: Retail inflation figures, released by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI), Retail inflation rose to a 5-year high of 7.35% in December 2019. Earlier, in July 2014, the retail inflation had reached 7.39 %.
iv.Global growth:The report stated that, due to the long trade dispute in 2019, the world economy grew by 2.3%, which is the lowest in 10 years. It is also projected to grow at a rate of 2.5% in 2020. In the coming times, business stress, financial ups or geopolitical tensions may affect recovery.
v.2 ways to accelerate growth:
(i) India, which is going through an economic downturn, needs to continue with structural reforms & (ii) Financial incentives and financial sector reforms are needed to increase investment and consumption.
vi.Background:Many international and domestic agencies had lowered India’s growth forecast Earlier. The UN is the 7th institution to cut India’s growth forecast.
Previous prediction includes, Asian Development Bank -ADB(5.1%), National Statistics Office- NSO(5%),Reserve Bank of India – RBI (5%), World bank (5%), Moody’s (4.9% ), Fitch (4.6%),State Bank of India- SBI(4.6%).
About United Nations (UN):
Headquarters– New York City, US
Secretary– General- António Guterres