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Economic slowdown? India just gave away a Billion $ to Russia

Addressing the plenary session of Eastern Economic Forum, PM Modi said the friendship between India and Russia was not restricted to governmental interactions in capital cities, but is about people and close business relations.

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Theres a lot of hue and cry about Economic slowdown in India. Job cuts, hiring freeze, factory shutdown, and suspension of production are some of the headlines staring at us as the Gross Domestic Product (GDP) growth rate of the economy slipped to five percent for the first quarter of 2019-20, the lowest in over six years.

But then theres another side of the story. In his recent visit to Russia, PM Modi did what has never been thought, imagined or dreamt of earlier. PM Modi announced a line of credit worth one Billion US dollars for the development of the Far East region of Russia.

Addressing the Plenary Session of 5th Eastern Economic Forum, EEF, in Vladivostok earlier this week, Prime Minister Narendra Modi said this announcement will prove to be a take-off point for India’s ‘Act Far East’ policy.

Mr Modi had said that east Russian region is full of resources which provide an opportunity for Russia and its friends.

The Prime Minister said that start-ups are India’s strength and youth of India and Russia can work further with new technologies for development of both countries.

So, is India going through a recession or a slowdown now? Going strictly by the definition, India may not be in a recession yet. If we consider the GDP growth alone, there have been four quarters of slowing growth. But the GDP growth is still at 5 per cent (real GDP is still growing and has not declined) and far above the low of about 3 per cent recorded in 2008.If we look at the domestic factors in isolation, the situation is not irreparable. But we need to take cognizance of global uncertainties at this point. If there is a severe slowdown or recession in leading economies such as the US and China, India cannot escape unhurt. Also, the Brexit factor could disrupt global conditions in the months ahead.

Ornamental tax and other fiscal incentives to specific industries are not suddenly going to make Indian manufacturers competitive and stop India’s addiction for affordable Chinese goods. If any, the trade spat between China and the United States only saw countries such as Vietnam and Bangladesh benefit and not India.

Higher currency or trade tariffs are not the solutions. The Reserve bank has lowered interest rates and there is some effort to decrease the cost of capital for industries. But then, Indian industries can invest nore only when the demand for goods and services arises. And demand will arise only when wages increase, or there is money with the people.

So, the only current solution for India seems to be to boost consumption through a stimulus given to people directly.

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