Economic Slowdown in India - Analysis Part 2

Hey there, 

Hope you enjoyed reading Part 1.

If you have not read Part 1 yet, be sure to check it out through this link: Economic Slowdown In India - Analysis Part 1

In this part we shall continue to analyse and discuss some more factors that have played a role in the economy. 

Failure of Banks: This is a huge factor. Due to loans that were given years ago under political pressure, banks are now facing a crisis. A lot of people with low credit-worthiness had been allotted enormous loans by different banks. Notable examples include Vijay Mallya, who took a 11,000-crore loan from several different banks; and Nirav Modi, who took a 9,000-crore loan from the Punjab National Bank. When it was time to repay these loans, both these businessmen absconded. More recently, Yes Bank has also failed due to many defaults. Though it has since been revived by the government, this has been done at a huge cost to the government treasury, which will be refilled how? Yes, you guessed it. From the taxpayer’s money. Now, the question arises – How much of this is Modi’s fault? Most of these loans that are now being defaulted were allotted in the UPA era between 2004-2014. At this time, there was a huge advantage to businessmen like Mallya who were close to the Gandhi family/ often, their loan requests were approved without much due diligence. While Modi can definitely be blamed for not taking stringent action to prevent these men from absconding, the issuance of the loans is what caused all of this in the first place.

High rate of Tax Evasion: Granted, no one likes to give away money. Even more so when there is no discernible benefit in return. Government hospitals, schools, and almost all other services that are being provided in lieu of the Income Tax that people pay are sub-standard when compared to private schools and hospitals. In such a situation, why would anyone want to pay 30% of their income as income tax? That is why several people look for ways to evade tax as much as possible. While I do not blame you for doing so, it must be noted that there are only 1.5 crore taxpayers in a nation of 127 crore people. This reduces government revenue, thus reducing the amount of money that they can spend on employment generation and other public welfare programmes. However, one cannot just be expected to pay taxes that will ultimately be used for someone else, like forgiving the loans of all farmers, something which is a very common election tactic these days. Both the people and the government have to compromise to a certain extent. The first step, though, has to be taken by the people by promising to honestly and sincerely pay their taxes. The government, on the other hand, should commit to using theses funds for the benefit of all and not just a few, by improving the quality and quantity of the facilities that it provides. 

Global Economic Slowdown: Another reason for the slowdown that we are seeing in the Indian economy is that the entire world is now going into a state of recession. This is a self-correcting measure that is taken by the economy every once in a while. The severity and the consequences vary from instance to instance and country to country, but there is always a recession in the economy every few years, brought on by a multiplicity of factors. The recent global slowdown has been caused due to Trump’s aggressive trade policies and his tariff war with China and Iran. This has also been fuelled by China’s equally aggressive retaliation, Brexit, and the accession of Prince Mohammed bin Suleiman to the title of the Saudi Arabian Crown Prince. All throughout the world, people are afraid of a recession like the one in 2008, and the effects of this are being felt in India as well. The effects in India are also more prominent because India is predominantly dependent on the service sector for its employment. A majority of the work in the service sector comes from the outsourcing of various Business Processes like call centres, database management, and bookkeeping. With a slump in the growth of these companies due to a fear of impending recession, the demand for these services has also reduced, thereby reducing unemployment. 

Again, we are faced with the same question – having analysed these 3 factors, whose fault is it? For the first one, blame can be laid squarely on the governments (both the UPA and the NDA are at fault) as well as bank employees. For tax evasion, again, the blame lies on both the general working-class population as well as the government. For the global slowdown, no one is to blame. No blame can be appropriated to Modi for the global slowdown – while he certainly does spend a huge chunk of his time touring the world, he doesn’t control everything in it.

-NK