INDIAN ECONOMIC

SLOWDOWN
MEASURES TAKEN BY THE GOVERNMENT OF INDIA
THE ECONOMIC SLOWDOWN
• The last quarter for the FY 2018-19 ended with a GDP growth rate of 5.8%.
• However this dropped to 5%, a sharp decline of 0.8% in the first quarter of FY
2019-2020.
• The current GDP numbers are the worst in the last 6 years.
 CAUSES FOR THE ECONOMIC SLOWDOWN
The following are the endogenous
factors:
1. Fall in the Private final
Consumption expenditure: The
PFCE dropped to 3.1% in FY20
compared to 7.2% in the last
quarter of FY19. Lower
consumption has a direct effect
on output and employment.
2. A fall in investment: Contribution
to GDP fell by 6.2% points in
2014-19 than in 2011-14.
3. Fall in production
4. High rates of GST
5. High unemployment
The following are the exogenous
factors:
1. US-China trade war: Contracted
world trade and, in turn Indian
exports.
2. End of preferential trade treatment
from the US: This came into effect
from the 5th of June 2019. India was
the largest beneficiary in 2017 with
$5.6 billion worth of exports to the
US, duty free.
 MOST AFFECTED ECONOMIC SECTORS
REAL ESTATE
• India’s top 30 cities had
1.28 million unsold housing
units as of March 2019.
• The real estate sector has
linkages with 250 industries,
for example steel, cement
, furnishings, paint etc.
FMCG COMPANIES
• The volume growth of fast-
moving consumer
goods(FMCG) has slowed
down over the past one year.
• Hindustan Unilever Ltd.- fell
from 12% FY19 to 5%in FY20.
• Dabur India- fell from 21% in
FY19 to 6% in FY20.
• Britannia- Down to 6% against
13% last year.
AUTOMOBILE INDUSTRY
• During April to June the car
sales fell by 23.3% compared
to the previous year.
• This will have an adverse
effect on the manufacturers
of steel, tyre , steering etc.
• Growth of vehicle loans has
gone down to 5.1%, the
slowest in 5 years.
• Tractor sales fell by 14.1%
during April to June, the
highest in four years.
PHASE I
 FOREIGN PORTFOLIO INVESTORS AND AUTOMOBILE
SECTOR
FOREIGN PORTFOLIO INVESTORS
• Withdrawal of the high surcharge
levied by the government in the
Union Budget on long and short
term capital gains.
• The dropping of the surcharge on
FPIs will cost the government ₹1400
crore.
• The FPIs had pulled out ₹ 23,000
crore from domestic equities in July
and August after the budget
proposal.
AUTOMOBILE SECTOR
• BS-IV vehicles purchased up to March
2020 will remain operational for their entire
period of registration
• Additional 15% depreciation will be
provided on vehicles acquired from now
till March 2020, taking the total
depreciation to 30%.
• FM said that she will also consider a
‘Scrappage policy’ to increase the
demand for new vehicles.
• Increase in one-time vehicle registration
fee will remain the same till June 2020.
 OTHER ECONOMIC REFORMS

1. Cheaper loans: The RBI rate cut benefits will be passed on to the
borrowers through MCLR reduction.
2. No angel tax: Angel tax provision will be withdrawn for startups and
their investors.
3. Capital infusion: ₹ 70,000 crore capital into public sector banks to
boost lending and improve liquidity.
4. GST refunds: MSMEs to get all their pending GST refunds within 30
days. GST refunds to micro, small and medium enterprises(MSMEs)
will be paid within 60 days from the date of application.
PHASE II
 BANK MERGERS

• The government announced four major

bank mergers as its second wave of
reforms.
• After the merger, the number of India’s
public sector banks will drop to 12 .
• This is expected to create fewer and
stronger global sized banks to boost
economic growth.
• It will also reduce cost of operation.
• However it could lead to more
unemployment.
PHASE III
 CORPORATE TAX CUT
• The corporate tax rate will be 22%
for domestic companies ( reduced
from 30%). This is effective from the
current financial year.
• Corporate tax rate reduced from
25% to 15% for new
manufacturing companies.
• Minimum Alternate Tax has been
reduced from 18.5% to 15%.
• The revenue forgone is ₹1.45 lakh
crore which will widen the fiscal
deficit from the current target of
3.3% to 4% of the GDP.
 EFFECTS OF CORPORATE TAX CUT
1. Will encourage Make in India
It could attract investments moving out of China.
Could attract industries like textiles back to India.
Those already investing could scale up plans.
2. Bigger profits and lower taxes could encourage more investments.
3. Lower taxes could make companies more competitive and could boost
exports.
4. Boost for stock markets
Rise in earnings for Indian companies will make stocks more attractive.
5. Job creation
Investments increase job opportunities. Rise in demand from fiscal boost
encourage companies to hire.
THANK YOU