Demand, supply and growth slowdowns

For India to complete its development transformation, a switch to a broad-based and more inclusive composition of domestic demand is of the first importance

There is an ongoing debate about whether the current slowdown reflects a demand- or supply-constrained economy. Analytically, this question is pertinent when a slowdown is cyclical. If aggregate demand is less than potential output, then the economy is demand-constrained. But if actual output is less than potential output, despite the existence of aggregate demand, then it can be termed a supply-constrained slowdown.

Structural slowdowns are more complicated. In the case of a developing country such slowdowns are attributable to specific factors (lack of infrastructure, over-regulation, etc.) but may equally be a consequence of interplay between demand and supply factors.

Demand is a