Every economy, developed or developing, has its shockbearing capacities. Beyond that it gets affected adversely. Nonetheless, everyeconomy goes through business cycles, which means Recession, Depression,Recovery, Expansion and Peak. These business cycles are fundamental in naturefor every economy and are not affecting much adversely to the economic growthof a country. However, there are certain shocks which cause a drastic economicslowdown and even lead to a severe decline in the economic growth of a countylike war, droughts and famines, natural calamities, or implementing certainkind of new policies or rules in the economy. Same four major shocks have beenwitnessed by Indian economy from 2016 to 2020. Before that the Indian economywas going parallel with its leading neighboring country China in-terms ofeconomic growth. However, the economy of India faces its first shock on 8 Nov2016, when the Modi led government announces, demonetization of currency notesof Rs 500 and Rs 1000 in India. The ban of old notes of Rs 500 and Rs 1000 inthe economy is being cited as key contributor for slowing down of economicgrowth in the country. With note ban of these 500 and 1000 rupees, the grossdomestic product (GDP) for April-June quarter slips to 5.7 percent when targetedgrowth was expected to 7.5 percent in the country. The purpose ofdemonetisation 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 mostlydepending on cash payment. Therefore, staring with a retail market, it ismostly a cash payment market and the cash crunch lowers the demand ofconsumers, 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 ofpayment for buying groceries is cash, but due to cash crunch the demand formost of goods had declined due to demonetisation, which drastically hits thesales of small firms and business units in the economy. Moreover, agriculture sector which is still adominant sector in India is largely depending on cash for purchasing farminputs. Further, there are so many other factors which are impactingagriculture sector such as sales, distribution, marketing and transport, whichare dominantly depending on cash payments. Demonetisation disrupted the supplychains of agriculture sector. The marginal and small farmers, who were sellingtheir agriculture products on daily basis to wholesale centres, mandis have hithard by demonetization, which led to the decline of growth in this sector. Thusdemonetization has led to slowdown and has declined the economic growth ofIndia. However, before Indian economy could overcome from this shock the Modiled government has implemented the Goods Service Tax (GST) on July 1, 2017 inIndian economy, which further worsens economic growth.
2. Goods and Services Tax: Goods and Services Tax (GST), implemented onJuly 1, 2017, is regarded as a major taxation reform till date implemented bygovernment of India. The primary objective for implementing the GST was toimplement one taxation system and to subsume all sorts of indirect taxes inIndia like Central Excise Tax, VAT/Sales Tax, Service tax, etc. in the country.However, implementation of GST has also adversely affected some sectors inIndia. The Former RBI governor said that the Goods and Services Tax (GST) arethe two major headwinds that held back India’s economic growth in 2018. Hesaid, asserting that seven percent growth rate is not enough to meet thecountry’s needs. However, the entire supply chains were disrupted due to theimplementation, due to which Chinese imports have overpass our markets. Theformer Prime Minster and economist Dr Manmohan Singh said that as a toppriority, Modi government must radically simplify and rationalize GST regime,even if it means a loss of revenue in the short term. The different percentageof GST tax rates has affected on the performance of some sectors
Automotive sector was major sector, which was hard hit bythe implementation of GST. The burden of GST percentage was highest in thissector which comprised 28 percent, due to which automobile sector witnessed acrises and have been seen a drastic decline in its production. Overall 3.5 lakhjobs have has been lost during this period. The ripple effects have also facedby other automobile allied industries. Decline in the demand has led toslowdown of this sector. Further, service sector has also experienced a slowdownwith the implementation of GST. The job creation in the service sector has alsodeclined with the implantation of GST in that year. Real estate sector hasexperienced a slowdown, with its allied industries such as bricks, steel andelectrical industries. Moreover, MSME sector, which is known as backbone ofIndian economy, has got affected adversely. The capital stock in this sectorhas been kept upheld for a long time with the implementation of GST, andhampers its performance in the country. Then Bank crisis was also affectedIndian economy. NPAs are continuously rising, which further leads to creditcrises in the economy despite all this country was in a healing mode ofeconomic 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