What are the cause and effect of macroeconomic problem in India?

Introduction to Macroeconomic in India

India is considered a high potential investment opportunity destination around the world despite some challenges like political, social, cultural complexities, etc. Since the economic reforms in 1991, India opens its door to world markets and commenced to encourage investors to try and do business with India.

This article provides the readers with brief information about macroeconomics problems which is India facing and their effects on the Indian economy.

Macroeconomic analysis of GDP, unemployment rates, national income, price indices, output, consumption, unemployment, inflation, saving, investment, energy, international trade, and international finance.

India is a developing country. After economic reforms in 1991 that is New Economic Policy (NEP) which helps in the faster economic growth of the country's economy by liberalization, Privatization, Globalization with reduced controls on foreign trade, investments, and simplification of registration for industrial growth by the delicensing policy. The Indian economy growth rate was 9 percent during the period of 2004 to 2008. This high growth phase was also achieved by the consolidation of key macroeconomic indicators.  but due to financial crises in 2008 effect the Indian economy growth phase and started declining. 

However, the economy still faces various problems and challenges, such as unemployment, low per capita income, Income inequality, restriction in business, lack of infrastructure, poverty in rural areas, and poor tax collection rates are major problems.

The Causes/Problems of the Macroeconomic in India 

Inflation

It refers to a rise in the prices of most goods and services of daily or common use, like food, clothing, housing, transport, etc. According to World Bank India's inflation rate was 4.94 percent in 2016, 2.49 percent in 2017, 4.86 percent in 2018, and 7.66% for the years 2019 increases by 2.8 percent. During inflation, few people gain but most people lose. 
The objective of government policies is to ensure price level stability in the economy to avoid inflation and deflation 

Lack of Infrastructure

The poor infrastructure pulls down India's GDP growth by 1-2 percent every year. The fast growth of the Indian economy in recent years has put stress on physical infrastructures, like electricity, railways, roads, ports, airports, irrigation, water supply, etc. India’s infrastructural facilities or social overheads of capital are inadequate.
To develop infrastructure in the country, the government is anticipated to review problems with budgetary allocation, tariff policy, fiscal incentives, private sector participation, and public-private partnerships (PPPs). Infrastructure development will help in creating a much better investment climate in India. 

Low per Capita Income

The per capita income of India is low as compared to other countries is a concerning factor and needs to be addressed. The Indian economy is facing a pointy slowdown in growth. According to World Bank India falls within the lower-middle-income category of the countries, which have a per capita income in the range of $1,026-3,995. 
India’s per capita income is around in the middle of that range estimated at $2,015.6 in the year 2018. Incidentally, there are 47 countries during this grouping with an average per capita income of $2,218.9. India is below that average. In terms of rank, India is at about the 30th country during this segment.

The Trade Cycle:

It refers to periodic fluc­tuations in the levels of economic activities or business ac­tivities, i.e., low output level, decrease employment level, low investment, and price level.  The periods of good trade  (expansion of business activities) are alternate with periods of bad trade (contraction in business activities). 
The ups and downs in economic activities affect the economic growth rate by declining investment, employment, output, and increases inflation and recession.  

Unemployment

The unemployment rate was 29 percent because of lockdown from March 2020 due to the Covid-19 outbreak. Currently, it fell to 7% in September 2020 says the report of CMIE – Centre For Monitoring Indian Economy. The coronavirus outbreak has forced lockdown, many industries to shut down thus increasing unemployment across the country at the present. The unemployment rate was 6.1 percent in 2018 mentions the NSSO – National Sample Survey Organisation Report 2019. 
Despite rapid economic growth, unemployment remains an issue in both rural and urban areas. The fast rate of economic growth has left unskilled workers behind, and that they have struggled to search out works in growing industries. 
India is going through an employment crisis mode. And, the standard of education in India is making it worse because of the poor structure and curriculum learning at the primary level and this continues to secondary and graduation levels which produce a poor quality workforce. Which is one of the major reasons for an outsized number of unemployed graduates.

Balance of Payments deterioration.

The balance of payments (BOP) of a country indicates its economic strengths and weaknesses. Most of the developing countries are deficit in their Balance of Accounts, and India also has a deficit balance of payment. Since independence, India has been facing this deficit or disequilibrium in terms of BOP, largely observed as a disaster in 1990-91.

The depreciation of the rupee with the dollar and other currencies during 1987-91 had resulted in a rise in the value of imports. 

The current account deficit in 1990-91 weakened the power to finance deficit tremendously. Political uncertainty at home, copied with rising inflation and widening fiscal deficits, led to a loss of international confidence. There is a need for rebalancing the economy and improve the competitiveness of exports.

Stagnant growth: 

Stagnant growth is a situation where the supply of products is not increasing or it is decreasing below the benchmark. In a stagnant economy, production does not meet the demand of the population. The factors affecting stagnant growth are quantities and quality which are labour, capital, land, and entrepreneurs. Government regulations and high taxes discourage businessmen from investment resulting in lower creation of jobs and lower production, because of the lower quantity of capital.

Restrictions in Business

In spite of accelerating India's world ranking of ease doing business, It is noticeable that India still maintains a restrictive policy of ease of doing business. 
Due to a maze ( difficult, confusion) of laws and regulations, it takes more time and effort for an entrepreneur to start-up a business in India. It takes even a greater effort to obey an order or request by the department, state, and center laws.
Major Laws and Regulations Governing Conduct of Business in India is Pollution Control, Service Tax, Income Tax, Sales Tax, Profession Tax, Central Excise, Company Law, Labour Laws, etc. 

Regional Inequality 

India’s economic growth has benefitted only some regions which is Technological hubs like Delhi and Mumbai have attracted higher-paying jobs. This has attracted an inflow of most mobile and skilled workers. this has created congestion in these super-cities but did not address the poverty of rural areas, especially in the northeast.

Effects of Macroeconomic Problems in India

Low Productivity

Macroeconomics problems result in low productivity in several sectors, especially in the agriculture sector. Productivity is low in India as compared to the developed countries because of the improper utilization of accessible resources and labour. The foremost reasons for declining in agriculture productivity are natural because the Indian economy majorly relies on agriculture which depends on rain. The fluctuation in economic activity and restrictive business policy impact the productivity of a country.

The total factor productivity of a system will be increased by utilizing resources effectively and efficiently. and make availability of scarce resources. We can try to learn from developed countries for enhancing productivity.

Declining Investments

One of the main impacts of inflation in an economy is the general slowdown of the economy. When this happens unemployment rates increase, the purchasing power of the buyer decreases, credit becomes expensive. All these cause a stress on the whole national economy of the country. It discourages both domestic and international player's from heavy investment in the economy.

Indian households were already leveraged going into the present crisis. Once unemployment goes up and income disappears, households will find it difficult to repay existing loans, includes make new expenditures.

Stressed Banking Sector

The problem of Non-Performing Assets (NPAs) in the Indian banking sector has become the subject of much discussion and inspection. 

After a decline in bad loans seen in 2018-19, weaken macroeconomic conditions showing stress on the banking sector, data published by the RBI recently.

According to RBI The gross NPA ratio for PSU banks is 17.3 percent as of September 30, 2019, compared to 17.6 percent as of March 31, 2019. Private banks reported a gross NPA ratio of 9.5 percent at the end of the second quarter of 2019-20, as compared with 8.9 percent six months ago.