August 20, 2019

Opinion | Is India headed for its worst growth recession in a decade?

In this Mint article, Niranjan Rajadhyaksha looks at why monetary policy is the best option for India by looking at the loss of economic momentum as a growth recession. 


Excerpts below: 


"Much of the debate in recent months has been focused on the sharp loss of economic momentum in India. The big question is whether the ongoing slowdown is structural or cyclical... Another way to look at the situation now is through the prism of a growth recession. Economists define a recession as three consecutive quarters of contraction. Economic growth slips into negative territory during a recession. A growth recession is different. The economy does not contract. It continues to expand, but at a sequentially slower pace."


On using a monetary policy approach, 


"Monetary policy is the best bet right now. However, it works with a lag of around three quarters in India, which means that a rate cut today moves the demand needle nine months later. So, the fiscal lever may have to be used as a last option in case demand destruction continues. It should ideally be directed towards sectors such as home building, roads and automobiles that have strong links with other parts of the economy."


Read the complete article here

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