Every economy, developed or developing, has its shock bearing capacities. Beyond that it gets affected adversely. Nonetheless, every economy goes through business cycles, which means Recession, Depression, Recovery, Expansion and Peak. These business cycles are fundamental in nature for every economy and are not affecting much adversely to the economic growth of a country. However, there are certain shocks which cause a drastic economic slowdown and even lead to a severe decline in the economic growth of a county like war, droughts and famines, natural calamities, or implementing certain kind of new policies or rules in the economy. Same four major shocks have been witnessed by Indian economy from 2016 to 2020. Before that the Indian economy was going parallel with its leading neighboring country China in-terms of economic growth. However, the economy of India faces its first shock on 8 Nov 2016, when the Modi led government announces, demonetization of currency notes of Rs 500 and Rs 1000 in India. The ban of old notes of Rs 500 and Rs 1000 in the economy is being cited as key contributor for slowing down of economic growth in the country. With note ban of these 500 and 1000 rupees, the gross domestic product (GDP) for April-June quarter slips to 5.7 percent when targeted growth was expected to 7.5 percent in the country. The purpose of demonetisation was to curb black money, terror funding, corruption etc. however, demonetisation put a severe impact on Indian economy. Nonetheless, Indian economy is mainly an informal economy. The informal economy is mostly depending on cash payment. Therefore, staring with a retail market, it is mostly a cash payment market and the cash crunch lowers the demand of consumers, which leads to decline in the sales volume in retail markets. Nonetheless, in our day to day daily needs of goods, the most favorable mode of payment for buying groceries is cash, but due to cash crunch the demand for most of goods had declined due to demonetisation, which drastically hits the sales of small firms and business units in the economy. Moreover, agriculture sector which is still a dominant sector in India is largely depending on cash for purchasing farm inputs. Further, there are so many other factors which are impacting agriculture sector such as sales, distribution, marketing and transport, which are dominantly depending on cash payments. Demonetisation disrupted the supply chains of agriculture sector. The marginal and small farmers, who were selling their agriculture products on daily basis to wholesale centres, mandis have hit hard by demonetization, which led to the decline of growth in this sector. Thus demonetization has led to slowdown and has declined the economic growth of India. However, before Indian economy could overcome from this shock the Modi led government has implemented the Goods Service Tax (GST) on July 1, 2017 in Indian economy, which further worsens economic growth.
2. Goods and Services Tax: Goods and Services Tax (GST), implemented on July 1, 2017, is regarded as a major taxation reform till date implemented by government of India. The primary objective for implementing the GST was to implement one taxation system and to subsume all sorts of indirect taxes in India like Central Excise Tax, VAT/Sales Tax, Service tax, etc. in the country. However, implementation of GST has also adversely affected some sectors in India. The Former RBI governor said that the Goods and Services Tax (GST) are the two major headwinds that held back India’s economic growth in 2018. He said, asserting that seven percent growth rate is not enough to meet the country’s needs. However, the entire supply chains were disrupted due to the implementation, due to which Chinese imports have overpass our markets. The former Prime Minster and economist Dr Manmohan Singh said that as a top priority, Modi government must radically simplify and rationalize GST regime, even if it means a loss of revenue in the short term. The different percentage of GST tax rates has affected on the performance of some sectors
Automotive sector was major sector, which was hard hit by the implementation of GST. The burden of GST percentage was highest in this sector which comprised 28 percent, due to which automobile sector witnessed a crises and have been seen a drastic decline in its production. Overall 3.5 lakh jobs have has been lost during this period. The ripple effects have also faced by other automobile allied industries. Decline in the demand has led to slowdown of this sector. Further, service sector has also experienced a slowdown with the implementation of GST. The job creation in the service sector has also declined with the implantation of GST in that year. Real estate sector has experienced a slowdown, with its allied industries such as bricks, steel and electrical industries. Moreover, MSME sector, which is known as backbone of Indian economy, has got affected adversely. The capital stock in this sector has been kept upheld for a long time with the implementation of GST, and hampers its performance in the country. Then Bank crisis was also affected Indian economy. NPAs are continuously rising, which further leads to credit crises in the economy despite all this country was in a healing mode of economic growth
3. COVID-19: Recently, the Prime Minister Mr Narendra Modi announced a complete 21 days of lockdown in India other than essential services, in order to prevent from increasing spread of Covid-19 virus. However, the shutdown of economic activities will further worsen the economic growth rate of India economy, as already economy is facing a huge slowdown from 2018 onwards. The growth rate of India has already reached to 4.5 percent, which is ever slow growth rate in India and this lockdown will further lead to economic slowdown of country and the predicated growth rate may further decline and may reach to zero or negative in the first quarter of Covid-19. Therefore, in the aftermath of Covid-19, there will be a huge challenge for Modi led government and for the policy makers to accelerate the economic growth of the country. The graph below showing the growth rate of India from Jan 2017 to Jan 2020 and from the graph it is clearly indicating that Indian economy is already facing more economic crises from Jan 2018 to onwards. Earlier the growth of Indian economy equaled the growth of its neighboring country China but the economic shocks have led to significant decline.
Suhail Ahmad Bhat is Research Scholar Department of Economics Babasaheb Bhimaro Ambedkar University, Lucknow