Budget 2020: What is growth recession & why should the government worry about it?

The term ‘growth recession’ has gained currency after comments made by former RBI governor Raghuram Rajan. In December, Rajan said India is in the midst of a “growth recession” with signs of deep malaise in the Indian economy that is being run through extreme centralisation of power in the PMO and powerless ministers.

Growth recession is a situation in which growth slows down for a few quarters but does not turn negative. Growth recession is not exactly a recession as understood in common parlance which entails two consecutive quarters of negative growth leading to massive unemployment.

The term growth recession was coined by Solomon Fabricant, an American economist to explain a phase of slowdown which is as severe as contraction of the economy.

An example of growth recession is when the growth rate reduces substantially, coinciding with a job contraction. It combines the feature of both an economic slowdown and a recession as growth slows while the economy experiences job contractions just as during an economic recession.

The government has intervened from time to time to aid sectors facing challenges and also effected key reforms like cutting corporate tax rate. But experts feel more needs to be done to lift the economic growth rate to its potential as the Modi government plans to reach the $5 trillion goal by 2024.

As the Indian economy loses steam with first advance estimates pegging growth to stall to just 5 per cent in the current fiscal (FY20), all eyes will be on Nirmala Sitharaman as she presents the Budget on February 1.