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  • India is one of the world's fasting growing economies. It had been touted as an

  • economic and geopolitical counterweight to China. But recently its growth fell to its

  • slowest pace in six years. Investment has weakened, and unemployment has risen.

  • So what's causing the slowdown, and how can it be reversed?

  • Since the turn of the century, India's economy has grown at a rapid rate,

  • helping transform the country.

  • Between 2006 and 2016, rising incomes lifted 271 million people out of poverty, meaning

  • the proportion of Indians still living in poverty

  • has fallen dramatically, from around 55% to 28%.

  • Access to electricity has also improved. In 2007 just 70% of the population had access

  • to power. By 2017, that grew to nearly 93%.

  • More recently, the Indian government constructed around 110 million toilets -- a huge step

  • towards better sanitation designed to prevent the practice of open defecation. It's a signature

  • program of Prime Minister Narendra Modi, known as Swachh Bharat, or Clean India.

  • All this development has been supported by a booming economy, but as of late, thatexpansion

  • has begun to run out of steam. In the third quarter of 2019, India's economic output

  • grew by 4.5% - making it the first time the country's growth dipped below 5% since 2013.

  • For context, 4.5% growth is still much higher than that of developed economies like the U.S.,

  • But with 12 million Indians entering the workforce every year, economists say

  • the country needs annual growth rates to stay above nine percent

  • to ensure there are enough jobs.

  • So, what's causing this recent slowdown?

  • Well, government officials argue turbulence in international financial markets is at fault.

  • Political uncertainty and  U.S.-China trade tensionsmean confidence levels among investors

  • and consumers everywhere have sunk.

  • The United Nations has even warned that a global recession in 2020

  • is now a ”clear and present danger.“

  • But back to India - many economists say the country's

  • growth problems are actually self-inflicted.

  • One obvious culprit is the shadow banking sector.

  • During the 2000s, India saw an investment boom. It was fuelled by state banks dishing

  • out a load of loans for big infrastructure projects. But some of the companies taking

  • advantage of these loans couldn't keep up with the repayments. That meant the state

  • banks weren't getting paid back and therefore struggled to give out new loans.

  • To keep business moving, shadow banks stepped in. These financial institutions, which operate

  • like ordinary commercial banks but don't follow traditional banking rules, eventually

  • made up an estimated third of all new loans nationwide.

  • The loans played a pivotal role for the millions of small businesses and consumers who would

  • otherwise have no access to credit.

  • But in 2018, shadow banking giant Infrastructure Leasing & Financial Services, defaulted on

  • its debt repayments. Its collapse sent shockwaves through the economy and shook up more traditional

  • banks that had supported the sector.

  • This had a ripple effect. It became harder for people to buy expensive items like cars.

  • That hurt India's automotive industry, which is one of the country's biggest.

  • It employs about 35 million people and makes up about 7% of India's GDP. Last summer,

  • the industry suffered its worst sales performance in nearly 19 years, and reports suggest tens

  • of thousands of workers have been laid off.

  • The agriculture and construction sectors have also been hurting, with small and medium businesses

  • being hit the hardest.

  • The country's unemployment rate has been on an overall upward trend since July 2017,

  • rising several percentage points to 7.7%.

  • Higher unemployment means consumers are buying less, leading to the unfortunate cycle of

  • slower manufacturing, production, investment and job creation.

  • A survey from the Reserve Bank of India found consumer confidence has fallen to its lowest

  • level in five years. But Indians still have a positive outlook for the future, with most

  • consumers expecting to feel more optimistic in a year.

  • However, if things don't improve, debt could become another issue. Expecting better days

  • ahead, many households have continued to spend, by taking out loans and dipping into savings.

  • Household savings as a proportion of GDP has fallen from 23.6% to 17.2%. Meanwhile, household

  • debt has surged to 10.9% during the same period.

  • Critics say the government in New Delhi has failed to spot these risks and hasn't done

  • enough to get the economy moving again.

  • The Reserve Bank of India's former governor Raghuram Rajan recently blamed the lack of

  • significant reforms and a slowdown in investments since the global financial crisis.

  • Even the country's chief economic advisor recently admitted

  • reforms are needed to make India more friendly to investors. India has cut its corporate tax rate,

  • but labor and land laws are still extremely strict. He also says the country

  • needs to become pro-market, rather than just pro-business,

  • to avoid costly government bailouts of failing sectors.

  • But not all reforms have been good to the economy.

  • In 2016, Prime Minister Modi tried to clamp down on corruption, counterfeits and tax evasion

  • by banning high value bank notes. In one night, the cash ban made 86% of all hard currency

  • invalid. Three years later, many analysts say the policy disrupted the economy and failed

  • to achieve many of its original goals.

  • In 2017, a new sales tax placed small businesses

  • under pressure and some of them were forced to close.

  • In mid-2019, India's government introduced a controversial new tax on foreign investors.

  • Consequently, India's stock market suffered its worst July performance in 17 years.

  • Just one month later, the measure was scrapped.

  • The government has now refocused its efforts on international trade and investment,

  • and the recent changes to the corporate tax rate could indeed

  • help attract businesses and investors to India.

  • But if the country wants to be part of the world's largest supply chains, it will need

  • low and consistent tariff levels to encourage outsiders to invest for the long term.

  • The country's shifting export policy has harmed

  • several of its largest industries, particularly clothing.

  • India's share of the global apparel market has increased only slightly in the past 20 years.

  • And though the Indian workforce is vast, both Bangladesh and Vietnam now export more.

  • On top of that, the country's import tariffs on average are much higher than the world's

  • biggest economies. They're also among the highest of the world's emerging economies.

  • Even U.S. President Donald Trump has called for the country to bring down its duties.

  • But let's take a step back. Has India's growth actually slowed as much as we think?

  • The government's former chief economic advisor Arvind Subramanian

  • caused a fair bit of controversy in June 2019, when he claimed the country's official stats

  • probably overstated GDP growth by 2.5% from 2011-2012 to 2016-2017. He says the bottom

  • line is that India never recovered from the global financial crisis.

  • The government denies this.

  • But none of this has hurt Prime Minister Modi at the polls -

  • he won by a landslide in the most recent election.

  • So how will he keep his promise and double the size of the economy by 2025?

  • Many economists insist a well-explained economic vision would help. As would more

  • long-term investment, better skilled workers and improvements to infrastructure.

  • It may not matter who or what is to blame for India's recent economic challenges,

  • but bottom line - India's economic growth needs to bounce back, and fast.

  • Hi guys, thanks for watching our video. We hope you enjoyed it. if you did please subscribe

  • but before you do that we'd love to know your thoughts on India's economy. Comment below

  • the video and let us know and we'll see you next time.

India is one of the world's fasting growing economies. It had been touted as an

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なぜインドの成長は鈍化しているのか?| CNBCが解説 (Why is India’s growth slowing? | CNBC Explains)

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    Courtney Shih に公開 2021 年 01 月 14 日
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