The Drivers of India's Slowing GDP Growth: A Comprehensive Analysis

India's GDP growth rate has experienced significant changes in recent years, largely due to a combination of economic, structural, and global factors. This article delves into the various reasons behind the halving of India's GDP growth rate over just three years, providing insights into the complex interplay of these factors.

1. Impact of the COVID-19 Pandemic

The Pandemic and Its Economic Consequences: The year 2020 marked a severe contraction in India's GDP growth rate, primarily due to the global COVID-19 pandemic.

Lockdowns and Supply Chain Disruptions: lockdown measures and disruptions in global supply chains led to a substantial slowdown in economic activity. Consumer Spending Drop: Decreased consumer spending further contributed to the economic contraction.

2. Supply Chain Disruptions Post-Pandemic

Continued Challenges in Manufacturing and Services: Even after the initial phase of the pandemic, sectors like manufacturing and services continued to face supply chain challenges, leading to production slowdowns and rising costs.

3. Rising Inflation

Fuelled by Commodity Prices and Supply Chain Issues: Inflation in India has been rising due to increased commodity prices and supply chain disruptions. This has affected the purchasing power of consumers and their spending patterns.

Monetary Policy Tightening: To combat inflation, the Reserve Bank of India (RBI) has raised interest rates, which can dampen both investment and consumer spending.

4. Global Economic Conditions

Geopolitical Tensions and Economic Slowdowns: The global economic environment has been marked by geopolitical tensions, fluctuations in energy prices, and economic slowdowns in major economies. These factors have affected trade and investment flows to India.

5. Persistent Structural Issues

Complex Regulatory Environment and Infrastructure: India faces structural challenges such as a complex regulatory framework, inadequate infrastructure, and difficulties in the agricultural sector. These issues can hinder sustainable growth.

6. Investment Slowdown

Decline in Investment: Both private and public investment have slowed down, impacting overall economic activity and growth prospects.

In addition to these factors, the ripples from the demonetization and poorly implemented Goods and Services Tax (GST) further exacerbated the economic challenges:

7. Demonetization and GST Implementation

Impact of Demonetization and GST: The economic situation in India was already struggling with massive bad loans in the banking system. The demonetization and poorly designed GST had a compounded effect on economic growth.

The GDP growth rate declined from over 8% in fiscal year 2017 (FY17) to around 4% in FY20, just before the pandemic struck the country.

Understanding the multifaceted nature of India’s economic landscape and the challenges highlighted above can help policy-makers and stakeholders develop more effective strategies to address the ongoing economic slowdown and promote sustainable growth.