Continuous slow down of Indian Economy is evident from various macroeconomic factors. Understanding these factors and making complete sense out of this scenario is not only difficult but cumbersome too. Lets understand it from layman's point of view. Five major reasons are following.
1. People are not able to take Loans as easily as before:
Other than big famous banks such as ICICI, SBI, HDFC, AXIS etc. bigger chunk of GDP is financed by NBFC ( Non banking Finance Corporations). These institutions forms strong foundation for growth of Indian Economy in the areas of rural projects, riskier businesses and meeting the financing needs of marginalized population which are not supported / touched by structural banking process.
These institutions are not structured in terms of their client profile check, IT intervention in the financial transactions and 100% transparency of the dealings. To improve the situation, Government / RBI has given instruction that by Sep'18 ,all their processes are to made transparent and digitized. because of such major interventions NBFC's have withhold their unbridled Loans to the masses. It has reduced the Consumption appetite and major reason for fall in demand.
2. Agriculture Sector is in really bad shape:
70% of Indian population is dependent upon Agriculture sector. Low inflation ( Price index of basic items) is good sign from the middle class consumer's point of view but it is also vital sign of deprived farmers who are getting less for their output. Farmer's distress is because of several fundamental reasons such as Inefficient Value chain, several intermediaries and unpredictable/ unfavorable Weather conditions. Off late this low income of farmers has resulted into less purchasing power and muted demand of basic items such as white goods, bikes, tractors etc.
3. GST/ Demonetization/ Stringent Tax collection mechanism:
Good things come at the cost. Initiative taken by NDA government have been really phenomenal and will benefit economy in longer run,but in shorter run it has created nervousness in the mind of Small businesses, Service providers and Black money market operators that their business models are going to fall apart. This has resulted into stalling the businesses out of fear/ anxiety till the time they find the alternative business models. Further government's actions to catch hold of tax evaders percolated the fear/ anxiety/ nervousness among them after GST/ Demonetization. This fear is quiet palpable now in terms of India Inc. business sentiment.
4. Too much of commotion in Automotive Industry:
Automotive Sector contributes to majority of Manufacturing Sector, which is 30% of total Indian GDP. This sector is critical not only from the point of view of its GDP contribution but also because of vastness of its value chain. It starts from Steel Industry, Plastic Industry, Technology firms, Rubber Industry and huge supplier base of auto component Industry. Further it intrudes into service sector such as Dealerships, Insurance Industry, Financing Industry and Peripheral Transport Industry.
This multi faced Industry is affected by three major knee jerks trends.
A. Government Regulations : BSVI ( Stricter fuel Efficiency), CAFE Norms ( More Mileage per liter) and Electric Vehicles ( Reduce Carbon footprints/ Pollution Control) , these have created more confusion in the minds of consumers and Uncertainty in the minds of business houses as these changes require major investments in Technologies, Clear govt Policy ,Supportive public Infrastructure and adoption by the masses to make hem cost effective.
B. Increased Fuel Prices/ Insurance Costs: In last 7-8 Years, fuel prices have risen(>50%) so much that personal vehicle ownership has become dearer. further it has been aggravated by rising Insurance costs ( 30% rise). These two factors are critical from the owners point of view. Recent survey by JDPOWAR reflects the same trend among millennial who are questioning the purpose of Car ownership. They are preferring car sharing o meet their commutation requirements.
C.Erratic Competitive Market : The rising costs of vehicle ownership have given rise to intrusion of Technological companies in the territory of Automotive OEMs. This is the reason for the parallel Business models such as OLA/ UBER/ Shared mobility and New entrants such as KIA and several Chinese giants have made the competitive markets quite erratic.
Emergence of Electric Car would be the biggest change after 1920s in the auto sector, where value chain will change drastically. Further autonomous Cars , High R&D Costs, Fierce competitive market has created commotion in fundamental Industry which drives the economy in a big way. The spillover effect is evident in Economic slow down as well.
5. Global Unrest ( Trade/ Social/ Environmental)
It is not only India, which is getting feelers of Slow down. UK, China , US , Japan all major markets are witnessing the signs of weak Economy. This has further been dampened by Rising Crude Oil prices, US- China Trade war, US sanctions on Iran Support Countries, US-Russia Cold war, Trump's random comments on major events and rise of terrorism & War/ Strife in Syria, rising concerns over Global warming, Natural disasters ( Sultry Europe, Flood in US, China, Brazil) because of erratic weather patterns. These Global events had spill over effect on Indian subcontinent because of which consumer has either delayed or withhold its purchasing decisions among global uncertainty.
Summary & Ray of hope
These five factors are major reasons for the slowing down of Indian Economy. This situation would persist for how long is not easy to predict, but I am sure this is going to change partially from April 2020 given that Govt take positive actions to create clarity of its policies and efforts to build foundation for growth , simultaneously Business houses need to adopt Innovative Partnership based business Models to cater this VUCA world.
1. People are not able to take Loans as easily as before:
Other than big famous banks such as ICICI, SBI, HDFC, AXIS etc. bigger chunk of GDP is financed by NBFC ( Non banking Finance Corporations). These institutions forms strong foundation for growth of Indian Economy in the areas of rural projects, riskier businesses and meeting the financing needs of marginalized population which are not supported / touched by structural banking process.
These institutions are not structured in terms of their client profile check, IT intervention in the financial transactions and 100% transparency of the dealings. To improve the situation, Government / RBI has given instruction that by Sep'18 ,all their processes are to made transparent and digitized. because of such major interventions NBFC's have withhold their unbridled Loans to the masses. It has reduced the Consumption appetite and major reason for fall in demand.
2. Agriculture Sector is in really bad shape:
70% of Indian population is dependent upon Agriculture sector. Low inflation ( Price index of basic items) is good sign from the middle class consumer's point of view but it is also vital sign of deprived farmers who are getting less for their output. Farmer's distress is because of several fundamental reasons such as Inefficient Value chain, several intermediaries and unpredictable/ unfavorable Weather conditions. Off late this low income of farmers has resulted into less purchasing power and muted demand of basic items such as white goods, bikes, tractors etc.
3. GST/ Demonetization/ Stringent Tax collection mechanism:
Good things come at the cost. Initiative taken by NDA government have been really phenomenal and will benefit economy in longer run,but in shorter run it has created nervousness in the mind of Small businesses, Service providers and Black money market operators that their business models are going to fall apart. This has resulted into stalling the businesses out of fear/ anxiety till the time they find the alternative business models. Further government's actions to catch hold of tax evaders percolated the fear/ anxiety/ nervousness among them after GST/ Demonetization. This fear is quiet palpable now in terms of India Inc. business sentiment.
4. Too much of commotion in Automotive Industry:
Automotive Sector contributes to majority of Manufacturing Sector, which is 30% of total Indian GDP. This sector is critical not only from the point of view of its GDP contribution but also because of vastness of its value chain. It starts from Steel Industry, Plastic Industry, Technology firms, Rubber Industry and huge supplier base of auto component Industry. Further it intrudes into service sector such as Dealerships, Insurance Industry, Financing Industry and Peripheral Transport Industry.
This multi faced Industry is affected by three major knee jerks trends.
A. Government Regulations : BSVI ( Stricter fuel Efficiency), CAFE Norms ( More Mileage per liter) and Electric Vehicles ( Reduce Carbon footprints/ Pollution Control) , these have created more confusion in the minds of consumers and Uncertainty in the minds of business houses as these changes require major investments in Technologies, Clear govt Policy ,Supportive public Infrastructure and adoption by the masses to make hem cost effective.
B. Increased Fuel Prices/ Insurance Costs: In last 7-8 Years, fuel prices have risen(>50%) so much that personal vehicle ownership has become dearer. further it has been aggravated by rising Insurance costs ( 30% rise). These two factors are critical from the owners point of view. Recent survey by JDPOWAR reflects the same trend among millennial who are questioning the purpose of Car ownership. They are preferring car sharing o meet their commutation requirements.
C.Erratic Competitive Market : The rising costs of vehicle ownership have given rise to intrusion of Technological companies in the territory of Automotive OEMs. This is the reason for the parallel Business models such as OLA/ UBER/ Shared mobility and New entrants such as KIA and several Chinese giants have made the competitive markets quite erratic.
Emergence of Electric Car would be the biggest change after 1920s in the auto sector, where value chain will change drastically. Further autonomous Cars , High R&D Costs, Fierce competitive market has created commotion in fundamental Industry which drives the economy in a big way. The spillover effect is evident in Economic slow down as well.
5. Global Unrest ( Trade/ Social/ Environmental)
It is not only India, which is getting feelers of Slow down. UK, China , US , Japan all major markets are witnessing the signs of weak Economy. This has further been dampened by Rising Crude Oil prices, US- China Trade war, US sanctions on Iran Support Countries, US-Russia Cold war, Trump's random comments on major events and rise of terrorism & War/ Strife in Syria, rising concerns over Global warming, Natural disasters ( Sultry Europe, Flood in US, China, Brazil) because of erratic weather patterns. These Global events had spill over effect on Indian subcontinent because of which consumer has either delayed or withhold its purchasing decisions among global uncertainty.
Summary & Ray of hope
These five factors are major reasons for the slowing down of Indian Economy. This situation would persist for how long is not easy to predict, but I am sure this is going to change partially from April 2020 given that Govt take positive actions to create clarity of its policies and efforts to build foundation for growth , simultaneously Business houses need to adopt Innovative Partnership based business Models to cater this VUCA world.
