economical and financial reasons for changes in banking sector in india from 2014 to 2019
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Economic activity in India slowed down in 2019-20 as a synchronised global downturn amplified by drags on aggregate demand took a costly toll. After remaining benign in the first half, headline inflation picked up subsequently on spikes in food price inflation. Monetary and credit conditions reflected deceleration in underlying activity in the economy. Financial markets turned volatile in the later part of the year in sync with global markets, reflecting the impact of the pandemic. Public finances recorded deviations from budgetary targets due to shortfalls in tax revenue and disinvestment collections. On the external front, the current account deficit narrowed with net capital flows remaining robust; foreign exchange reserves rose during the year.
II.1 THE REAL ECONOMY
II.1.1 Amidst a loss of momentum across geographies, escalation of trade tensions between China and the US, uncertainty over Brexit, and heightened geo-political risks, the global economy grew at its slowest pace in 2019 post global financial crisis. Just as these retarding forces appeared to be easing their grip towards the close of the year, the novel coronavirus (COVID-19) broke out and rapidly exploded into a pandemic, darkening global economic prospects and imparting extreme uncertainty about the outlook.
II.1.2 As contagion was spreading to over 200 economies across the world, claiming over 59 lakh infections and 3,67,166 deaths worldwide by May 2020, the release of provisional estimates (PE) of national income by the National Statistical Office (NSO) at the end of the month revealed that the growth of India’s real gross domestic product (GDP) had slumped to 4.2 per cent in 2019-20 (6.1 per cent a year ago), the lowest since 2009-10. A downturn that set in during the last quarter of 2016-17, abstracting from ephemeral base effects in the second half of 2017-18, caused economic activity to lose speed over eight consecutive quarters to touch a low in Q4:2019-20 that has not been seen in the history of the 2011-12 base series. All components of domestic demand were driven down, except government final consumption expenditure (GFCE), which provided sustained support to aggregate demand. On the supply side, activity in manufacturing, construction and transportation was pulled down by sector-specific impediments1. Agriculture and allied activities provided a silver lining, on the back of record foodgrains and horticulture production, coupled with resilient allied activities and an outlook brightened by expectations of a normal south west monsoon (SWM) in 2020.
II.1.3 Against this backdrop, this chapeau is followed by component-wise analysis of aggregate demand. Developments in aggregate supply conditions are analysed in sub-section 3. The last sub-section covers analysis of employment based on high frequency indicators and includes an assessment of the impact of the COVID-19 pandemic and major policy responses. Policy perspectives are set out in the concluding paragraph.
2. Unravelling the Demand Slowdown
II.1.4 The May 2020 release of PE for 2019-20 offered a first glimpse at how the economy fared in Q4:2019-20 and, therefore, in the year as a whole; it also brought to bear revisions to estimates for the preceding quarters. The new release confirmed a 2.8 percentage points reduction in the growth of aggregate demand below its decennial trend rate of 7.0 per cent, and a sequential deceleration from a recent peak of 7.9 per cent in H2:2017-18. Real GDP growth in H2:2019-20 at 3.6 per cent was also the lowest registered in the 2011-12 base series (Appendix Table 1). The disruption caused by the imposed lockdown brought economic activity to a near standstill during the last week of Q4:2019-20
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