The Indian economy, which registered impressive growth ranging from 6% to 8% per annum in the last couple of years, is experiencing slow movement at present. GDP growth in the first quarter of Financial Year 2019-20 (April to June) was estimated at 5%, with a downward revision likely for the next quarter.

The reasons behind this deceleration are several, as summarised here. The country has experienced a series of initiatives and structural reforms in the last three years. Though much needed, the reform-process has caused a notable disruption in traditional ways of conducting business and coincidently, the timing of domestic reforms has come at a time of global disruption caused by trade-disputes and the resultant economic slowdown. 

India’s overall exports have shrunk due to weak global trade and delays in refunds to exporters. Most of this occurred in the year of implementation of India’s new tax regime, the Goods and Services Tax (GST). Rising bad debts in public sector banking, coupled with IL&FS payment default in September 2018, aggravated the liquidity situation in Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs). The crisis, commonly referred to as the ‘liquidity crisis of 2018’, led to a severe financial squeeze on the supply as well as demand sides. Its impact is most visible in industries linked with real estate, automobiles and travel & tourism, and has significantly slowed consumption in these sectors. The effects of this liquidity crunch are still in evidence more than a year later.