India Projects Economic Revival After Worst Slowdown in a Decade
IMF says slowdown in India dragging down global growth
NEW DELHI - India will spend billions of dollars to revive the farm sector, increase spending on infrastructure to create jobs, and slash taxes — all in a bid to boost its sputtering economy, which has posted its worst growth in a decade. “
This is a budget to boost incomes and enhance purchasing power,” Finance Minister Nirmala Sitharaman said Saturday in parliament as the nation's 2020 budget was laid out. “We wanted to make sure money is in the hands of the people, particularly for the middle class and lower middle class.”
Economists warned, however, that a quick turnaround is unlikely for Asia’s third largest economy (after China and Japan). “I don’t see this economy reviving for at least one year, not a chance, and that, too, is an optimistic assessment,” said Santosh Mehrotra, an economics professor at New Delhi’s Jawaharlal Nehru University. “The situation continues to be grim.”
Political analysts say rebooting the economy is critical for Prime Minister Narendra Modi, who swept to power six years ago promising to take India's economy to new heights and create millions of jobs, but is facing criticism for focusing on a Hindu nationalist agenda during his second term.
The world’s fastest growing major economy until just a year ago, India has witnessed a sharp slowdown as its growth plummets to less than five percent in recent months. A government survey however has forecast the economy will pick up the pace and expand next year to between six and six-and-a-half percent.
The country's GDP is at its lowest point in six years and growth across multiple key industrial sectors has shrunk. Growth in the 2019 financial year (April 2019 to March 2020 in India) is projected to be less than five percent. The last quarter for which figures are available was the July to September quarter in 2019 when growth was 4.5 percent.
A massive slowdown in spending by the country’s 1.3 billion people who are coping with dwindling incomes and record unemployment is hurting the economy, which unlike most of Asia’s export-driven economies, depends heavily on domestic consumption.
The government said it would spend about $40 billion on various measures that could improve rural incomes. It will help farmers set up solar power generation units and establish cold storage facilities to transport perishable commodities, such as fruits and vegetables that farmers often are forced to sell at low prices.
Although the farm sector accounts for only 15 percent of India’s gross domestic product, it sustains two-thirds of the country’s population.
Tax cuts for individuals also are expected to persuade consumers to open their wallets and buy more cars and homes. The government also plans to push big infrastructure projects to create jobs – unemployment is at its highest in more than four decades.
A slowing economy has put more pressure on Modi as his government grapples with the biggest backlash it has faced since taking office.
Widespread protests have been sparked by a new citizenship law that critics have slammed as divisive because it excludes Muslims from immigrants from Pakistan, Afghanistan and Bangladesh, who will get citizenship. Political analysts warn the upheaval witnessed in the past six weeks risks taking the government’s attention away from the economic slowdown.