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Resource centre on India's rural distress
 
 

Is India headed for its worst growth recession in a decade? -Niranjan Rajadhyaksha

-Livemint.com

It is risky at this juncture to bet merely on a natural recovery. Even so, using monetary policy is the best option right now

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.

The usual thumb rule is that the policy response to a structural slowdown is through economic reforms that ease supply constraints. And a cyclical slowdown has to be tackled with measures to stimulate demand. Rathin Roy of the National Institute of Public Finance and Policy argues that India is currently facing a structural demand problem, which further complicates policy choices.

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.

India has had three such growth recessions in the past 10 years. The first episode was in the immediate aftermath of the financial crisis that originated in the US. Economic growth fell sequentially in the three quarters from June 2008, or the second quarter of fiscal year 2009. The downturn was sharp, but short.

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