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10 September, 2019

Is Indian Economy In a Recession, Growth Recession, Quasi-Recession? Or, what?

By Francis Adams

Experts in the United States have sounded the alarm on recession in their country, mainly citing the Trump administration's pesky trade war with China. Few of these experts have also hinted at a recession in the United Kingdom although the BBC News on Monday reported that the economy grew 0.3% in July, quoting the Office for National Statistics.
Photo by Kyle Glenn on Unsplash

How do you know a country's economy is in a recession?

The BBC says a recession has set in when a country's economy sees contraction for two consecutive quarters. In India, experts see contraction of three quarters in a row as a sign of recession.

While few experts have lent chorus to the opposition (especially the Indian National Congress)'s shrill shouts of our country already in the grip of recession, others using various media platform, have offered differing opinions.

Bloomberg, the Manhattan-based media company, has maintained an opinion that India has, effectively, entered a quasi recession. It has made this assumption while referring to a comment from an economist, Teresa John, working with retail broking company Nirmal Bang.

Neither Bloomberg nor Nirmal Bang have provided extended clues, explanation on what is quasi in this context, leaving us to refer to the dictionary meaning that says, seeming; resembling.

Meanwhile, India's largest-selling English-language publication, The Time Group's Economic Times, on Monday, ran a report released by news agency IANS that claimed that India's economy is in a growth recession. According to this report, a growth recession is a technical term used when the economy continues to grow, albeit at a slower pace.

The major impact, says this IANS report, has come from a steep fall in the Private Financial Consumption Expenditure, a term so long that you might be forgiven for sarcastically saying that the recession will have hit by the time you complete pronouncing this term correctly.

This PFCE combined with another long terminology, the Government Final Consumption Expenditure, GFCE, is said to have been driving our country's economic growth since the first major economic reforms were introduced in 1991.

Apparently, you have spent and consumed less in the June 2019 quarter, causing the PFCE to slide to a miserable 3.1 percent compared to the previous quarter percentage of 7.2 percent.

The other major factor, IANS claims, is a drastic fall in the Gross Fixed Capital Formation, GFCF, meaning contribution of investment to the economic growth fell by 6.2 percentage point during the period 2014-19 compared to 2011-14. As a result, this has hurt further infrastructure development.

Another expert, Swaminathan S Anklesaria Aiyar, consulting editor with the Economic Times, in his Swaminomics column on Monday, cited Global cyclical economic downturn and serious structural flaws or lack of reforms as the reasons behind India's GDP growth hitting 5% in the quarter ended June 2019 compared to 8.2% a year ago.

Aiyar also claims that the finance minister Nirmala Sitharaman has brought in cheerful measures to boost the economy, such as withdrawing income tax surcharge on capital gains that had seen foreign portfolio investors move away; the removal of angel tax on investors in startups; and reversing the punishment on corporations for not fulling their Corporate Social responsibility, CSR.

Then there are experts who continue to be critical about the Narendra Modi-led government on their reformative implementation of Demonetization and the Goods and Services Tax, GST as triggers for this slowdown.

However, before you step on the side of these critics, let's spare a thought on what triggered this government to take such bold steps.

Among these measures could be a strong reason to stop what this report from the Global Financial Integrity reveals. GFI is a Washington, DC-based think tank that analyzes illegal financial flows. In this June 3, 2019 report, GFI has revealed that trade misinvoicing (fudging) is likely to have cost the Indian government potential tax revenue losses of US$13 billion in 2016.

You may be aware that this government wound up the Directorate General of Supplies and Goods, DGS&D. In its place, it rolled out a transparent Government e-Marketplace, GeM.

Today, you too can, using your appropriate citizen identity, register on the GeM site, or the etenders site and know every tender detail that the government has released.

This e-marketplace, the government says, eliminates human interface in vendor registration, order placement and payment processing, thus transforming the way in which procurement of goods and services is done by the Government Ministries/Departments, PSUs, autonomous bodies etc.

You may, probably, argue or ask in a supportive manner that would it have been a little better had these bold reforms been delayed until the government got hold of the Indian black money, estimated to be about 90 lakh crores (US$1500 billion) in Swiss and other offshore banks?

Could be. But then again, huge corruption bubbles such as the Non-Performing Assets (NPAs) with banks, illegal money and several such messes inherited by this government needed to be got rid of immediately. This would have ensured that our economy does not see big bubbles burst the way the U.S. economy saw in the 2008 crisis.

The latest report says that the Swiss authorities will be releasing the first set of detailed financial information about Indians having Swiss bank accounts, including those closed since last year.

While this process happens, you can continue to remain positive, cheerful and help the economy by boosting domestic consumption, starting with this festival season.

As you know, India has traditionally been self-sufficient in several aspects, including a cash-rich Domestic Institutional Investors (DII) group that has mitigated the blows the stock market could have received on occasions the Foreign Institutional Investors (FII)'s have withdrawn their money from our bourses.

India's current position among the list of Less Corrupt Nations is 78. If you and the rest of 1.25 billion Indians lend this government support for their transparency goals, it is only going to help us and the millennials.

If we gave the previous government more than enough time and got little in return, why not allow this government some more time to make India what we all want her to be.