Since independence, India has been moving ahead with the world in the field of trade, be it America, China, Russia, Singapore, Vietnam, Philippines or European countries. Although earlier Indian trade policies made trade difficult, the LGP policy of 1991 (Liberalization, Privatization, Globalization) improved India’s trade policies a lot and helped India to make an open economy, due to which India not only facilitated trade with countries around the world but India has also contributed step by step with the countries of the world in every field, be it IT sector or manufacturing, export and defense. But the Covid pandemic in the year 2019 brought countries around the world to their knees and India too could not escape it. And today we will discuss some important reasons which are very important to know the root causes of this recession.
COVID 19 PANDEMIC
During the Covid 19 pandemic all the businesses were shut down all over the world and due to the lockdown all the transportation was shut down and this affected the businesses a lot. Because of this Indian economy got slowed down and the financial sector suffered from recession. Indian MSMEs (Micro, Small and Medium Enterprises) were greatly affected due to Covid, all the white collar jobs were working on online mode (work from home) due to Covid but the MSME sector was completely shut down during the Covid pandemic due to the unavailability of workforce. MSMEs are completely dependent on manufacturing and for manufacturing they need huge workforce. During the pandemic all the business sectors were moving at a slow pace but MSMEs were completely stopped. And in the Indian economy the MSME sector plays a very important role in booming the economy . and the Indian financial sector has not yet recovered from the slowdown triggered by the Covid pandemic.
INDIAN BANKING SYSTEM
During the pandemic and after the pandemic Indian banks faced problems in recovering their loan amount because due to unemployment people were not able to repay their loan EMI and because of this banks did not have money to give loans at that time but still banks were releasing new schemes to maintain their public image and to attract customers to provide loans. And at this time there were lots of banking audit scams and banks were not careful to maintain their regular audits and because of this lots of discrepancies happened. Because of this banking NPA increased a lot and at this time Indian banks waived off NPA amount of 16 lakh crores. This is the reason that money flow in Indian economy slowed down and there was also a recession in the economy. And to overcome this crisis banks decided to increase the interest rate on loans. and they increased their interest rate from 3% to 5%.
NON BANKING FINANCIAL COMPANIES
NBFCs (Non Banking Financial Companies) provide banks access to rural areas where banks are not able to provide their services. At this time NBFCs have come up which provide banks access to these areas and before and after covid in India NBFCs provided huge amount of loans to people sometimes even without checking proper documents. And also NBFCs provide small amount loans like 20000, 40000 and 50000 with huge interest rate. And because of easy availability people easily get attracted and get trapped in it. Due to pandemic there was huge unemployment in India that is why people were not able to repay their loan EMI that is why banks debt increased and cash flow slowed down and NPA also increased. As per the statistics every bank in India is facing the cash shortage, even the banks don’t have the cash to pay their customers who come to the bank to withdraw cash from their savings account.
INFLATION
According to the data the inflation rate in India has increased from 4% to 6% between 2013 and 2022 and the inflation rate in 2024 was 5.76%. Due to high inflation the middle class people of India are not able to purchase their daily basic need. And the inflation rate in India is increasing day by day but the earning of the people is stable and there is a huge difference between the inflation rate and the basic earning of the people in India and due to high inflation the Indian middle class is losing its purchasing power and more than 100 crore Indian people do not have money to buy their basic needs like salt, oil, soap and detergent powder.
INDIAN TAXATION SYSTEM
The Indian taxation system is very complex and not easy to understand. There are many taxes in India like Income Tax, GST, Direct Tax, Wealth Tax, Sales Tax, Property Tax, Value Added Tax (VAT), Goods and Services Tax and even Gift Tax. So it is not possible for the people of India to understand many types of taxes and Indian middle class people are suffering from these taxes. Mostly income tax is collected from the middle class and salaried people, that is why the middle class people and salaried people pay 40% to 60% of their earnings as tax, but the tax rate is low in the corporate world in India. That is why rich people are becoming richer and middle class and poor people are becoming poorer. To control the economic crisis in the country, the government should take initiatives to make the taxation system flexible and easy to understand.
INDIAN STOCK MARKET
Indian stock markets are very volatile these days. After pandemic people got better knowledge about stock market and at that time they started investing. As per the data of COVID-19 period and the following year Indian public opened new demat accounts with record 14.2 million in FY 2021, at that time Indian stock market was working well and in stable mode. But from September 2024 to 2025 till now Indian stock market has crashed and huge amount of money has been lost from the market, as per the data about 94 lakh crore has been lost from the market. It brought huge economic slowdown in the country’s economy.
CONCUSION
Indian financial sector is in recession but they are working well and government is also trying to help by making new policies. RBI has given some flexibility to the banks so that they can come out of this situation. And Indian government has taken some positive initiatives towards the banks so that they can get help from the government and recover from recession.
Thanks for visiting in welophost.com
Thanks for reading the article and I hope you enjoyed it. And if you have any queries then come to the comment section and comment, I will surely respond.