Is there an economic slowdown in India?
Will the economy bounce back and get near double-digit?
A lot has been discussed in the last 3 months. The economy will also follow a cycle of Bullish period where everything will grow on strong demand, then there will be a flat period and then enters the period of slow down followed by recession. Demand goes down steadily and it gets stopped with recession. Many fear recession as many will lose their jobs and no one knows when there will be a light at the end of the tunnel.
Global Condition :
2007-08 mortgage crisis in the US had a deeper impact across the world. Quantitative easing which was promoted was followed for the next 10 years still inflation didn’t come to the expected level. Slowly the Federal reserve started increasing the interest rates as the job opportunities has improved in the US. Now the trade war with China, the second-biggest economy will have serious impacts if not resolved.
China is the biggest exporter to the world and any slow down in that will have an impact. Already debt to GDP ratio is highest in the world for China.
In this week there was a drone attack on Saudi’s oil reserve had affected crude oil prices across the world. India imports one-fifth of the oil from Saudi and any increase in price will affect the GDP for sure.
These are conditions of a few of the global economies. As all the economy is interlinked, any changes in them will have an impact on other countries.
Local condition :
Everything has a start. It all started with the NBFC crisis. Liquidity crunch affected the NBFC, by large they were the one providing credit to buy two-wheelers and other consumer finance. When this started spreading, we had general elections and perception was that everyone was waiting for it to get over. During the elections time there was no economic activity and that became the reason.
In this 4 months time frame, auto stocks had piled up and the sales came down drastically. Month on month sales in passenger cars and two-wheeler crashed in the last 3 months. Another reason for this sales slump is BS6 changes and rules with regards to Electric vehicles. As there was no clarity on these rules many started postponing their bigger car purchase.
Consumption has also gone down in rural areas which are serious area of concern. Any good monsoon can bring back the cheer to bigger consumption companies. Economic activity will start from this sector. Once this improves it shows that increase in purchase power of rural people.
Below is the image from 17th September Economic times, which projects the areas of concern and hoping bigger Diwali. We need to remember that all these discretionary spends had gone down maybe because of NBFC crisis which started a few months back. There is also widely reported job cuts in the auto sector. This, in turn, will impact ancillary units which are the backbone of them.
We need to understand that everything in interlinked and the impact will be felt across sectors slowly.
We also need to consider GST changes which is being done every now and then. Changes were being made after considering the effects of higher rates in many of the sectors. Though it is 2 years since the implementation, the changes are ongoing process based on the impact it has created.
Is there any positives?
One biggest positive we have a stronger government which can act immediately on anything. They had brought in few changes on foreign investor rules after there has been sever back clash from NRI’s and FPI’s.
Merging of PSU banks to form stronger banks can ease the lending and put the system in place to accelerate growth in them. As of now, they lag private banks and the technology which they possess.
1) We also need to understand that India has a fairly younger population in the world and this is the base for any country to grow. US, China has developed based on the younger population in the last few decades.
2) Infrastructure development is very much under developed when we compare ourselves with China.
3) The average number of cars in an Indian home is in single-digit compared to the global average ( Ola and Uber are available in other developed countries as well )
4) We also had the impact of the global recession in 2008, but those who had invested during that time had reaped huge benefits during the time of 2013-15. Stock market corrected to 8000 and now it had touched 40,000.
5) The economy is just 2 Trillion Dollars and when we compare it with the US or china which is in double-digit of around 21 Trillion and 11 Trillion Dollars.
6) India is one of the biggest countries and it needs to serve its people. We have the potential of cheap labour and self consumption. US growth led by consumption and China growth led by export-driven.
If carefully planned we can have our own path of growth in the coming decades. Even if the planning goes wrong, we can become the biggest economy may be a few years later. We also need to believe in the vision of changing India to 5 Trillion Dollar economy by 2025.
When it comes to investing, the potential is huge. Start accumulating money and keep investing in equities for better returns.