India’s short lived stint as the world’s 5th largest economy is over. Deteriorating macroeconomic conditions such as a slowing GDP growth rate and a weak rupee were chief culprits for dragging our economy to 7th position in the new pecking order, according to a World Bank report.
Earlier, data had shown that India had become the 5th largest economy in the world in 2017 by displacing the UK and France, which then occupied 6th and 7th place respectively. According to World Bank data, in 2017, the size of India’s economy was $ 2.65 trillion, followed by the UK, whose economy stood at $ 2.64 trillion and France at $ 2.59 trillion.
However, this status was short lived, and the tables have turned rapidly on India as the UK’s economy grew to $ 2.82 trillion and the French economy expanded to $ 2.78 trillion, while India’s economy could only manage to grow to $ 2.73 trillion by 2018.
Economists are mainly attributing this to a movement of the Indian ₹ against the US $, and claiming while in 2017, the Indian ₹ appreciated 3% against the US $, in 2018 it depreciated 5% against the greenback. They say it is this reason why India’s economy was able to grow at 15.72% in dollar terms in 2017, and clock in a mere 3.01% growth in 2018.
Pointing the finger towards currency fluctuation is one thing, but the Indian ₹ doesn’t depreciate against the US $ by chance. Economic policies, export policies, inflation and general business environment all play a part when a currency depreciates or appreciates against another.
We all know by now that India is in the midst of a slowdown, and while a slowing world economy may have contributed to it, it is mainly due to the domestic policies implemented by the government, that doesn’t seem to understand the magnitude of the slowdown, and is not even willing to acknowledge it, that conditions are getting worse. Instead of biting the bullet and implementing some tough policy actions in the budget, all the government seems to be interested in doing, is raising taxes, in order to collect more revenue. But don’t they understand that by arbitrarily raising taxes, they are forcing big business and foreign capital out of the country?
A look at few headline macro indicators will prove our deteriorating state of affairs.
GDP growth is at a five year low. Fresh investments are at a fifteen year low. Unemployment is at a 45 year high. Growth in gross tax collections are at a ten year low (which reflects a decline in corporate profits). Further, core sector growth is at a four year low. Auto sales are at a two decade low. Exports have fallen. Consumption and demand are at multi-year lows. And, the proof of the pudding lies in the fact that the stock market has wiped off $ 200 billion in market cap, after the budget, on 5th July, increased taxes and offered little stimulus to revive a sagging growth.
To top it all off, in the middle of all this drama, comes the narrative that India is aiming to be a $ 5 Trillion economy by 2025, and plans to displace Japan in the rankings by then. According to the Economic Survey, which was presented a day prior to the budget, India needs to grow at 12% (not considering inflation) to achieve this target. If things keep progressing the way they have been, it’s hard to see us going forward in the rankings and easy to see us slipping further.