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LATEST NEWS UPDATES | Is the current slowdown cyclical or structural? -Deepti Mathew

Is the current slowdown cyclical or structural? -Deepti Mathew

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published Published on Aug 25, 2019   modified Modified on Aug 25, 2019
-IANS

While there is a consensus that the economy is slowing down, the debate is still going on whether the slowdown is structural or cyclical.

The Indian economy is passing through a phase of economic slowdown, with the GDP growth registering one of the lowest rates of 5.8 per cent in the last quarter of FY19. The GDP growth rate for the first quarter of FY20 is feared to be lower than 5.8 per cent. While there is a consensus that the economy is slowing down, the debate is still going on whether the slowdown is structural or cyclical.

In simple words, a cyclical economic slowdown is a part of the business cycle having its peaks and troughs. The economy will be moving in cycles with periods of peak performance followed by a downturn and then a trough of low activity. These are expected to be short-term problems that could be addressed with an adequate mix of fiscal and monetary policies.

On the other hand, sometimes the problems of the economy can go deeper, impeding the efficient and fair production of goods and services. In such a scenario, a monetary and fiscal stimulus won't be enough to revive the economy. Fixing such problems would require the government to undertake some structural policies. The best example in this regard would be the reforms that were carried out to address the crisis in 1991.

Now, the question is whether the Indian economy requires structural policies or a stimulus package through monetary and fiscal policy. We can analyse the performance of various indicators that would help us in assessing whether the slowdown is cyclical or structural. The economic growth of any country is driven by a virtuous cycle of savings, investment and exports. Of all the three, investment is considered to be the key driver of growth. To quote the Economic Survey (2019), investment, especially private investment, is the 'key driver' that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction, and generates jobs.

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The Economic Times, 24 August, 2019, https://economictimes.indiatimes.com/news/economy/policy/view-is-the-current-slowdown-cyclical-or-structural/articleshow/70814310.cms


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