Cyclical or Structural -- What is the nature of India's economic slowdown? -Nikita Vashisht

-TheWire.in

Some analysts believe that a slowdown in the GDP growth for the fourth consecutive year, from 8.2% in FY17 to around 6.5%  in FY20 (E), makes it a case of structural slowdown.

India’s real or inflation-adjusted gross domestic product (GDP) grew at 5% in the June 2019 quarter of financial year 2019-20 (Q1FY20), the slowest growth in six years (25 quarters).

In nominal terms, the growth stood at 7.99%, the lowest since December 2002. With this, fears of the slowdown being a more structural one than a cyclical one have surfaced.

What is a cyclical slowdown?

A cyclical slowdown is a period of lean economic activity that occurs at regular intervals. Such slowdowns last over the short-to-medium term, and are based on the changes in the business cycle.

Generally, interim fiscal and monetary measures, temporary recapitalisation of credit markets, and need-based regulatory changes are required to revive the economy.

What is a structural slowdown?

A structural slowdown, on the other hand, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour.

Dissecting India’s slowdown

A slowdown in consumption demand, decline in manufacturing, inability of the Insolvency and Bankruptcy Code (IBC) to resolve cases in a time-bound manner, and rising global trade tension and its adverse impact on exports are some of the factors affecting India’s growth, analysts say.

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TheWire.in, 3 September, 2019, https://thewire.in/economy/cyclical-structural-nature-india-economic-slowdown

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