Question

Summarize the arguments for slowing down the rapid growth of GDP?

Answer 1

Answer:

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Rating agency Crisil on Thursday lowered the gross domestic product (GDP) growth forecast by 20 basis points to 6.9% for 2019-20, citing weak monsoon and slowing global growth. This is marginally higher than the 6.8% GDP growth last fiscal, but lower than the 14-year average of 7%. Here’s a look at the reasons for the slowdown:

Jolt of reforms

Demonetization that happened in November 2016, dealt a severe blow to consumption, leading to a vicious cycle of job loss and lower-income, which led to a further drop in demand (what economists call the multiplier effect). The next shock came in the form of a reform — when GST was rolled out in July 2017. This had a knock out effect on export growth in the year of implementation because of delay in refunds to exporters.

Just as the effects of DeMo & GST were petering out, the IL&FS crisis triggered the Non-Banking Financial Companies' (NBFC) credit crunch in 2018. By 2018-end, weakening global trade and GDP growth, led by US-China tariff wars, had caught up, amplifying the impact.

Tight monetary and fiscal policies

Since 2016-17, the monetary policy was focused on inflation control, which ensured interest rates remained hard. The combined fiscal deficit of the Centre and the state was high. And the government committed to lowering its fiscal deficit, left little wiggle room for the government to increase its spending to pump-prime the economy.