Zee Business Mutual Fund Helpline 19 Aug 2019 Mr Prakash Ranjan Sinha

Economy Slowdown reasons

Economy Slowdown reasons

Many experts are blaming demonetisation and GST as a cause of economic slowdown . Some are even going to the extent of blaming lower cash transaction , increasing tax net etc as a cause of slow business .I am not able to understand their logic . If that’s the case then in most developed economy businesses are operating on non cash , digital transaction basis since last many decades then how they have developed their economies all these years ?

It’s a very silly excuse in India . Where has cash gone ? RBI has pumped back the withdrawn ( 500, 1000 rupee notes ) currencies back into the economy in form of new currency . So cash within economy is at same level . Salaried employees are getting salaries as like earlier times .

Apart from global issues where we have lesser control lets analyse only domestic factors for this slowdown .

Reason is most corporates in order to chase high growth were targeting higher earnings as that would have led to higher valuation and net-worth of promoters . Many went for leveraged money to fuel their growth desire adding more cost on their balance sheet . Stock market also reached a good height in anticipation of better earnings through more sales and revenue . Post demonetisation its not the cash crunch but the unwillingness to disclose cash in a transparent way ( GST ) has left many perplexed . The way many corporates went fudging their financial statements earlier are now not able to do so very easily . Projected earnings which were shown inflated earlier now are muted or getting corrected in the financial statements . Government has also become more vigilant on borrowings of corporates and also the effective utilisation of the borrowed money .

My personal belief is there is no recessionary trend but a slowdown injected into the system more because as an effect of normalisation of the situation emanating from the cleaning process in the economic system. Today many promoters are hesitant to put more money in their business as they are also waiting for normalisation process to complete and reversal of fabricated gloomy situation .

Promoters and businesses in India have to understand that they need to accept the positive changes and move ahead . We might see many businesses dying but at the same time emergence of many new entrepreneurs also who are willing to take risk and operate in a clean manner .