Shishun Huang & Qinghao Liu

Last Thursday, India has lost a case filed by the US at the WTO against domestic export incentives. With this ruling, India will have to re-work incentive schemes to comply with the WTO ruling. In consideration of that Modi has publicly announced that it will build India into an economy with a total economic output Of US$5 trillion in the next five years, India's defeat at the WTO will make it harder to implement such a plan. Meanwhile, India's economy has not fared well this year. According to the GDP data that had published, the Indian economy grew by only 5% during from April to June this year, falling to its lowest point in six years. India’s economic growth has been declining for five consecutive quarters, and economic growth has slowed markedly. Earlier this year, both the World Bank and the International Monetary Fund predicted that India’s economic growth rate will be around 7.5% in 2019-2020 fiscal year, Similar to the previous expectations, India will remain one of the fastest growing economies in the world. Indian central bank governor Shaktikanta Das also said that India's real economic growth rate in the 2019-2020 fiscal year is expected to reach 7.2%. At present, these predictions seem to be too optimistic. So, what factors make the Indian economy perform poorly?

In June 2019, Goldman Sachs, a global brokerage firm that published a report which showed that the slowdown of domestic consumption in India was the main reason for the economic slowdown in India. This is fully reflected in the sales of vehicles, India's car sales fell by 41% in August, truck and bus sales fell by 39%, and motorcycle sales fell by 22%, the automotive industry as the pillar of the Indian economy suffered huge losses. The “banknote scrap order” and the Goods and Services Tax (GST) introduced by the Modi government in 2016 are the core incentives for the decline in consumer demand. Due to these reforms were hasty implementation, leading to an increase in unemployment and a decline in income levels, which in turn lower consumers’ demand. At the same time, India's manufacturing industry and many export products have not been able to make adjustments. The follow-up impact continues until now, which has shaken the confidence of the people who cares India's economic development, and domestic private investment activities have also slowed significantly.

Internationally, the deterioration of the global economic environment is also one of the important reasons. Under the influence of the Sino-US trade war, the global economy is in a state of high uncertainty, trade and investment are affected, and the global market continues to be sluggish. As a result, the Modi government's policies of investment and export-led growth have limited impact on economic and industrial production. According to industrial data released by India, the growth rate of industrial production in India fell to 2% in June. The eight core industries such as coal, crude oil, natural gas, steel and electricity grew by only 0.2% year-on-year, the lowest level since December 2015. This showed that overall industrial growth is weak.  In addition, India's largest import commodity is crude oil, so the rise in international crude oil prices recently has also influenced India's inflation rate and current account deficit.

Based on the above international and domestic factors, the prospects for India's economic development are not optimistic. Although the Indian government has begun to formulate relevant policies to stimulate growth, such as Central Bank of India’s many interest rate cuts, increased infrastructure construction and vigorously increase the total amount of exports, but in the face of Modi's great economic goals, the Indian economy still faces many challenges. Some experts believe that India needs to maintain a growth rate of 9% for five consecutive years to achieve its goal.  However, in the context of the continued slowdown of the world economy, the growth rate of the Indian economy is still at the forefront of developing countries, and it shows that the economic growth capacity still has great potential. In order to cope with the current economic situation, in addition to stimulating demand of the domestic market, India should pay more attention to strengthening economic and trade cooperation with the countries of the Indian Subcontinent. After all, "far distant relatives are not as close neighbors." The countries of South Asia should also actively participate in regional cooperation to further enhance the level of regional cooperation. Only by mutual assistance and mutual benefit can the countries of the Indian Subcontinent create more development opportunities and overcome difficulties together to promote common development.

Shishun Huang & Qinghao Liu , Scholar of Yunnan University