India's Q1 GDP growth -23.9% : The way forward

India saw the sharpest decline in the Q1 GDP growth since the quarterly figure started being published in 1996. The GDP downfall is exacerbated by COVID-19 but the slowing trend for past 3 years can't be ignored. If we break the GDP into its components from the production side, we have Agriculture, manufacturing, and service sectors. The worst affected sector is the construction sector, seeing a decline of 50%, trade, hotels and other services(-27%), manufacturing(-39%), and mining (–23%) leading to a decline in income or job loss, in term reducing the purchasing power of an individual. Now let's look through another lens and break the GDP in terms of spending: Consumption, Investment, Government spending, Net export. India is a consumption-based economy and its growth is primarily driven by private consumption, which accounted for about 56% before this quarter, followed by investments, which accounted for 32%. So, GDP in terms of spending, 

GDP=C+I+G+Net Export.
C=Private consumption, I=Investments, G=Government Expenditure, Net Export=Export-Import.

Let's talk to data.


As we can see, there is a steep decline in consumption and private investments, which need to be compensated by government expenditure and net export to maintain a modest growth rate. After years we witness a positive net export and a current account surplus, might seem good on paper but this hints towards the plummeting economic activity.

The way ahead

There are reports that we see an upsurge of 21.20% in Kharif sowing. The immigrants returning to the villages have turned towards agriculture and India should be well prepared with a strong supply chain for proper management and exports of soaring Kharif crops in the coming season. This also hints us that the recovery will be driven by the private sector because the industry is sitting on the pile of money but unwilling to invest since there is no demand. The government should extensively focus on stimulating the demand side rather than the supply side, reducing corporate tax and other such policies are like providing "56 bhog" to a satiated person. The urban demand plummeted like the water table, which needs to be addressed on an urgent basis. The govt. can proliferate the construction activities, and heavily spend on the healthcare sector, this sector will not only provide jobs and take care of the demand side in short-run but will solve the supply side problem in the long run. Clear all the dues and outstanding bills, be it lakhs of crores of rupees of MSMEs, the income tax or GST refunds at least on a pro-rata basis. Providing certainty with transparency and cash will stimulate the demand and in turn spur investments, the two major growth engines of our economy.

What do you think what more can be done to fuel our economy?

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