Interim Budget 2024: What is growth recession & why should the government worry about it?

Former RBI Governor Raghuram Rajan's recent comments have brought the term 'growth recession' into focus, shedding light on India's economic state. This term, coined by economist Solomon Fabricant, delineates a phase where growth slows, yet the economy doesn't plunge into negativity. Rajan highlighted deep-rooted issues within India's economy, citing extreme centralization of power and ministerial limitations.
Growth recession, a concept explained by Fabricant, mirrors an economic slowdown, akin to a contraction but not as severe. It's characterized by diminishing growth rates coinciding with job contractions, straddling the features of both a slowdown and a recession.

India's government has intervened periodically, implementing reforms like corporate tax cuts to aid struggling sectors. However, experts emphasize the need for more significant efforts to propel economic growth, especially with the ambitious $5 trillion goal set for 2024.

As India's growth projections wane, attention now fixates on Finance Minister Nirmala Sitharaman's upcoming Budget presentation on February 1, seeking potential economic strategies and interventions.

1. What is a Growth Recession?
   Economist Solomon Fabricant coined the term 'growth recession' to describe an economy growing at a sluggish pace, shedding more jobs than it generates. It signifies an economic slowdown but doesn't reach the severity of a traditional recession.
2. How does a growth recession differ from a traditional recession?
   A traditional recession involves a sharp decline in economic activity across various indicators for at least two consecutive quarters. In contrast, a growth recession still showcases economic growth, albeit insufficient to create enough jobs for new job seekers.
3. What are the effects of a growth recession?
   In a growth recession, job creation slows down, leaving many unemployed and limiting new job opportunities. If inflation persists without matching wage increases, consumers experience reduced purchasing power, similar to the effects felt during a recession.
4. What causes a growth recession?
   A growth recession occurs when economic growth fails to match the pace necessary to accommodate new job seekers and existing workers. For instance, insufficient GDP growth in the US impacted consumer spending, revealing the effects of sluggish growth on the economy.
5. What measures are undertaken to combat a growth recession?
   Efforts to combat a growth recession involve strategic economic reforms and interventions. While governments may implement sector-specific aid and key reforms, experts stress the need for more substantial initiatives to uplift economic growth and generate employment opportunities.