Why India might face a Recession in 2021– 22?

Suraj Saste
9 min readOct 11, 2018


Recently in last 3–4 years that has been a lot of discussions about growth, improvement and how the current government is trying their best to take India to the new Heights. But in the last 3–4 years there also have been significant enough problems that we might face and economic turmoil leading to a lot of problems like unemployment, bankruptcy and more.

Reading all of this I thought of compiling all the problems which I think might cause a recession in 2021–22 and it might be the worst of all. Let me remind you that the recession we faced due to the Global factors such as Lehman brothers going bankrupt in America and causing a global slowdown in 2008 was not that much of a hit for the Indian economy as we were quite stable and sustainable on our own.

  1. Demonetisation

Now that the RBI has admitted that 99.3% of all demonetized notes came back to the banking system (not counting what remains in Nepal and Bhutan), it is fairly clear that demonetization was a flop. In economic terms. But it was a huge success in political terms for the prime minister personally and for his party in the Uttar Pradesh assembly elections. And that must be understood as having been the real goal of the demonetization exercise, all along.

The Economic Survey for 2016–17 estimated the loss in economic output arising from demonetization to have been anything between a quarter of a percentage point to one percentage point of lost growth. GDP growth rate slowed from 8% in 2015–16 to 7.1% in 2016–17 to 6.7% in 2017–18.

The demonetization also came in for sharp criticism from media outside India, with the New York Times saying that the demonetization was “atrociously planned” and that it did not appear to have combated black money, while an article in The Guardian stated that “Modi has brought havoc to India”.

The Harvard Business Review called it “a case study in poor policy and even poorer execution”. The frequent change in the narrative on objectives of the demonetization to its visible impact on the poorest of the poor made other critiques calling government’s narrative as spins in view of the “pointless suffering on India’s poorest.”

A Parliamentary panel report in April 2017 stated that rural households and honest taxpayers were the worst hit by demonetization. It said that it was not just the poor that suffered, but the manufacturing sector was impacted too. According to the panel, demonetization created significant disruption throughout the economy, because it was carried out without prior study or research.


Several people were reported to have died from standing in queues for hours to exchange their old banknotes. Deaths were also attributed to a lack of medical help due to the refusal of old banknotes by hospitals. As of 15 November 2016, the attributed death toll was 25 and 33 deaths as of 18 November. In an interview, Chief Minister of Delhi Arvind Kejriwal lashed out at a BBC reporter who asked him to justify his 19 November claim that 55 deaths were linked to demonetization. By the end of the year, opposition leaders claimed that over 100 people had died due to demonetization. In March 2017, the government stated that they received no official report on deaths connected to demonetization.

Read more about the negative impact due to demonetization: https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation

2. Poor GST and RERA implementation

After implementation of the GST, the industry has been facing various challenges, ranging from new and unique concepts, Complex documentation and higher tax rates for certain goods and services to a complex or not clear treatment of many common transactions.

Again while implementation of GST the background study was not strong enough because of that government proposed a complex structure for GST thereby keeping and different slabs for different necessary items and kept changing it constantly for first 6–8 months. Below image shows that India has the highest peak GST on certain items.

GST which I’m done putting everyone at an equal platform and charging then the single tax fraud the Nation was also altered and there were made more complex. The below image will show that.

RERA, real estate regulatory act which came into existence nationwide to took off the ‘loot’ by developers and protect the interest of the customers buying real estate. RERA was also not implemented very successfully there were crossing a great Havoc and slow down in the real estate industry which is an integral contributor to the GDP of the nation. In a lot of the states the RERA committee was not formed for first 4–5 months there were not having rules to take bookings from the consumers which caused the great slow down in real estate sales.

Though the study also shows that the GST and RERA were the necessary implementations which were heard and which will give prosperity in future but the poor implementation and poor market research has caused a sudden impact on economy and consumers.

3. PSU banks loan defaulters

Indian banks have reported wilful defaults of over Rs 111,738 crore involving 9,339 borrowers who have the capacity to pay up but refuse to repay loans.

State-owned banks have reported wilful defaults of Rs 93,357 crore involving 7,564 borrowers as of September 2017, according to data available with the Credit Information Bureau of India Ltd (CIBIL). This is a 340 percent surge in less than five years as total wilful defaults were just Rs 25,410 crore in 2013.

The gross non-performing assets (NPAs) is up to more than Rs 8.5 lakh crore from Rs 7.1 lakh crore, a 19 percent increase y-o-y. Meanwhile, total provision for NPAs was Rs 51,500 crore, a 28 percent jump y-o-y. During the quarter ended March 31, PSU banks had reported highest-ever losses combined loss of Rs 62,700 crore with 19 banks in the red.

The total loan write off by banks in the last ten years is now over Rs 360,000 crore. Banks had written off Rs 228,253 crore in nine years — from fiscal 2007–08 to 2015–16. ICRA said that write-offs amounted to Rs 132,659 crore in 2016–17 and the first six months of 2017–18.

Rating firm Crisil has said the stock of gross NPAs in the banking system is expected to rise to Rs 9.5 lakh crore by the end of this fiscal. NPAs started rising fast since fiscal 2015 and trebled from Rs 3.2 lakh crore seen then after the RBI pushed banks to recognize NPAs on time rather than kick the can down the road.

4. Rising crude oil prices impact

a. Higher prices: adverse impact on the fiscal deficit:

India imports 1.5 billion barrels of crude oil each year. This comes up to around 86% of its annual crude oil requirement. So, the surge in crude oil prices could increase India’s expenditure, thus adversely affecting India’s fiscal deficit — the difference between the government’s total revenue and total expenditure. Fiscal deficit indicates the amount of money the government has to borrow to meet its expenses. A rise in fiscal deficit could negatively affect the economy as well as markets. The fall in crude oil prices was a major contributing factor in the reduction of India’s fiscal deficit between 2014 and 2016, according to a report by Livemint.

b. Impact on the rupee:

The rise in crude oil prices has a clear impact on the Indian rupee. On 24 May 2018, the rupee closed at 68.34 against the US dollar. This is a near 18-month low for the rupee, and only 0.6% away from its all-time low of 68.825, according to a Livemint report. In addition, if crude oil prices remain at these high levels, the rupee is further expected to depreciate by the year-end. Rupee depreciation has a reverberating effect on the Indian economy and even the stock market. To arrest the rupee’s fall, the RBI often takes a few steps. Here’s a look at how the RBI defends the falling rupee.

c. Impact on Current Account Deficit (CAD):

India’s dependency on crude oil imports has only been increasing over the past few years. The dependency rose from 77.3% in FY2014 to 83.7% in FY2018. The rise in crude oil price has a big impact on the Indian Current Account Deficit (CAD). CAD is a measure of India’s trade where the value of goods and services imported exceeds the value of goods and services exported. CAD essentially indicates how much India owes the world in foreign currency. An SBI report suggests that Indian’s CAD could cross 2.5% of GDP for FY2019 (providing oil price continues at $80 per barrel). Currently, CAD is estimated at 1.9% for 2017–18. Widening CAD further puts pressure on the rupee’s value as well as the rest of the economy.

d. Impact on Sensex, midcaps:

The Indian stock markets have faced a lot of pressure due to the rise in crude oil prices. Between 1 and 24 May 2018 alone, the Sensex fell by 2.3%. In comparison, the BSE small-cap and mid-cap indices have had it worse with a drop of nearly 8%. With crude oil prices touching $80 per barrel, there has been a sell-off in small-cap and mid-cap stocks. Analysts warn that this could continue if the crude oil price continues to rise. Here’s what you can do.

e. Impact on stocks:

A lot of Indian companies depend on healthy crude oil prices. This includes tire, lubricants, footwear, refining and airline companies. The profitability of these companies is adversely affected due to higher input costs. This could negatively impact stock prices in the near term. On the other hand, oil exploration companies in the country could benefit from a rise in oil prices.

f. Impact on inflation:

Oil is a very important commodity and it is required to meet domestic fuel needs. And in addition to that, it is a necessary raw material used in a number of industries. An increase in the price of crude oil means that would increase the cost of producing goods. This price rise would finally be passed on to consumers resulting in inflation. Experts believe that an increase of $10/barrel in crude oil prices could raise inflation by 10 basis points (0.1%).

5. IL and FS controversy

What the whole sorry IL&FS saga tells us is that we can’t trust the experts. There are exceptions of course, but many use their expertise to enrich themselves, or they don’t use their expertise and let others enrich themselves. A majority of us are not financial experts, and we inexpertly pay taxes and invest in companies and buy insurance policies, and then find the money going into deep, deep holes. So here are a layman’s naïve questions: How did IL&FS run up a debt of Rs 91,000 crore (let’s spell it out: Rs 91,000,00,00,000)? Did it happen overnight? If it didn’t, as it obviously couldn’t, how did no one notice it till now? If it was noticed before, why didn’t its shareholders (LIC, SBI, Oryx Corp of Japan, Abu Dhabi Investment Authority being the major ones) call a halt and sack its management much, much earlier? If the shareholder directors were sleeping, were the independent directors Rip van Winkles too? How is it that two rating agencies, allegedly run by professionals, continued to give IL&FS an AAA rating, and in less than two months have downgraded it to D (Default)?

The unreality of it all is staggering. The government stepped in on October 1. But just two days earlier, the company’s shareholders approved a Rs 4,500-crore rights issue. And a mere month before that, the company gave out a final dividend of 10%. (In the previous year, the dividend was 42.5%). And you thought only profit-making companies gave out dividends? In the same vein, have you heard of companies facing virtual insolvency, awarding massive pay raises? IL&FS gave a 66% increase to its management staff, and chairman Ravi Parthasarathy gave himself a 144% increase, taking his salary to Rs 26.3 crore.

Notes and citations:

  1. https://economictimes.indiatimes.com/news/economy/policy/demonetisation-all-cost-and-little-benefit/articleshow/65639832.cms
  2. https://blogs.timesofindia.indiatimes.com/dharkersdilemma/ilfs-saga-tells-us-that-the-experts-cannot-be-trusted/
  3. https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation
  4. https://www.pwc.in/assets/pdfs/publications/2018/over-200-days-of-gst-the-road-ahead.pdf
  5. https://en.wikipedia.org/wiki/Real_Estate_(Regulation_and_Development)_Act,_2016
  6. https://economictimes.indiatimes.com/markets/stocks/news/50-times-jump-in-losses-by-psbs-in-june-quarter/articleshow/65420685.cms
  7. https://indianexpress.com/article/business/banking-and-finance/rs-111738-crore-thats-what-9339-wilful-defaulters-owe-psu-banks-hit-most-5072032/
  8. https://www.kotaksecurities.com/ksweb/Meaningful-Minutes/6-effects-of-rising-crude-oil-prices-on-the-Indian-economy



Suraj Saste

Sr PM @Avoma || Entrepreneur, Engineer || Ex Co-founder Quark Exp | Co-founder Aker Foods | Aker Retail