It’s time to address issues like human development, state capacity and the reform of factor markets
Many economists are struggling to classify the Indian economic slowdown. Should it be called “cyclical" or “structural"? Typically, a cyclical slowdown is caused by an excess of investment demand—over-investment in capital assets (residential and non-residential) and in inventory. The production of final goods generated by excess investment is not absorbed, leading to inventory reduction, lower prices, lower economic activity, and some loss in employment. When this is accompanied by excess debt, the cyclical slowdown can be prolonged or it may become structural.