Reforms needed for India’s economy to thrive

Last year, markets were cheered as the Indian economy receive a massive fiscal and monetary policy stimulus. Despite this, the Indian economy has been on a weak growth path – GDP growth slumped to more than a six-year low of 4.5 per cent year-on-year in the third quarter of 2019.

In addition to this, monthly economic indicators showed no sign of improvement. The most significant indicator being the infrastructure industry output index, which posted its worst drop in October and continued into negative territory in November. This index serves as a good guide for GDP growth because it measures the aggregate output of key infrastructure sectors such as coal, crude oil, natural gas, petroleum refinery products and so on. 

The main factor that has caused this drag on GDP growth is weak domestic demand which averages around 4.8 per cent – a significant drop from the 6.8 per cent in 2018.

The contribution of private consumption and the fixed capital formation contribution dropped sharply to GDP growth. This indicated that the Reserve Bank of India’s hasty easing was of no use in stimulating lending and investment. That said, a slightly better contribution from government consumption...