Economy Slowdown: Government Policies May Save India from “Vicious Circle”

Economy Slowdown: Government Policies May Save India from "Vicious Circle"

The current Indian economic scenario seems to get the major corporate giants and the small business owners in a stressful position. The recent GDP data released on August 30, 2019, showcased the worst slowdown in six years. According to the data, consumption and investment demand are declining due to reduced private final consumption expenditure.

In this economic situation, India might enter into a "vicious circle", as we can witness the complex chain of events happening. In this scenario, there is a restricted capital flow in the market. The concept of vicious circle includes "low investment" in the market leads to "low productivity" resulting in "low employment" and "low income" and since there is "low income" there is "no investment". It is called the vicious circle is because it continues to operate with no tendency of forming equilibrium until an external factor intervenes and breaks the cycle.

The Indian Corporate Giants have started showing the effects of the slowdown. India's largest automakers, component manufacturers and dealers have laid off about thousands of workers since the start of the year. Recently, the Maruti Suzuki, Parle, and various other brands reportedly laid-off their workers in the plants and other employees. This is not only affecting the employment but also creating a "poverty trap" and "liquidity crisis". The small businesses in the prime locations of the manufacturing plants like the outskirts of Delhi have showcased a fall in trade.

Rajnish Kumar, chairman of the oldest commercial bank in India, State Bank of India told various business dailies about the upcoming "two crucial months" Indian economy has to face.

Thus, Rajnish Kumar's emphasis on increased government spending is crucial. Kumar said "The major spending thrust will come from the government. Once that starts reflecting on the ground, I am hopeful that private sector investment will follow." The role of the Indian government is essential in fixing the liquidity crisis as the slowdown would probably continue for the next quarter.

Until the festive season kicks in, the Indian government is likely to closely monitor the market and make efforts to revive the Indian Economy with a mix of policy decisions and demand dynamics.  India might witness policies by the government that focuses on creating demand to ensure private final consumption expenditure that will lead to the flowing of funds in the market.