Context-Rajiv Kumar, the head of the government's think tank Niti Aayog, recently claimed that the current slowdown was unprecedented in 70 years of independent India and called for immediate policy interventions in specific industries.

•  In November 2017, that the global ratings agency Moody's upgraded India's sovereign ratings - an independent assessment of the creditworthiness of a country - for the first time in 14 years.In the two years since, Moody's has downgraded its 2019 GDP growth forecast for India thrice - from 7.5% to 7.4% to 6.8% to 6.2%.

The immediate questions that arise now are: is India's economic condition really that grim and, if yes, how did it deteriorate so rapidly?

• The auto industry is expected to shed close to a million direct and indirect jobs due to a decline in vehicle sales. Sales growth of men's inner wear clothing, a key barometer of consumption popularised by former Federal Reserve Chair Alan Greenspan, is negative. Consumption demand that accounts for two-thirds of India's GDP is fast losing steam.

•  Finance Minister Nirmala Sitharaman presented her first budget recently with some ominous tax proposals that threatened foreign capital flows and dented investor confidence. It sparked criticism and Ms Sitharaman was forced to roll back many of her proposals.

• Private sector investment, the mainstay of sustainable growth in any economy, is at a 15-year low.In other words, there is almost no investment in new projects by the private sector.

• The situation is so bad that many Indian industrialists have complained loudly about the state of the economy, the distrust of the government towards businesses and harassment by tax authorities.

But India's economic slowdown is neither sudden nor a surprise.

• India's largest import is oil and the fortuitous decline in oil prices between 2014 and 2016 added a full percentage point to headline GDP growth, masking the real problems. Confusing luck with skill, the government was callous about fixing the choked financial system.

• To make matters worse, Mr Modi embarked on a quixotic move in 2016 to withdraw all high-value banknotes from circulation overnight. This effectively removed 85% of all currency notes from the economy.This move destroyed supply chains and impacted agriculture, construction and manufacturing that together account for three-quarters of all employment in the country.

• Before the economy could recover from the currency ban shock, the government enacted a transition to a new indirect taxation system of the Goods and Services Tax (GST) in 2017. The GST rollout wasn't smooth and many small businesses initially struggled to understand it.

• Such massive external shocks to the economy, coupled with a reversal in low oil prices, dealt the final blow to the economy. Millions of Indians started to lose their jobs and rural wages remained stagnant. This, in turn, impacted consumption, slowing down the economy sharply.

• For all the hype about the Make in India programme, hailed as the harbinger of the country's emergence as a manufacturing power, India's dependence on China for goods has only doubled in the past five years.

• India today imports from China the equivalent of 6,000 rupees ($83; £68) worth of goods for every Indian, which has doubled from 3,000 rupees in 2014.

What are the options

• The solutions to the economic crisis are not easy.
• Indian industry, fed and fattened with government protection through decades, is once again clamouring for tax cuts and financial incentives.But it is not clear that such benefits will revive private sector investment and domestic consumption immediately.
• Ornamental tax and other fiscal incentives to specific industries are not suddenly going to make Indian manufacturers competitive and stop India's addiction for affordable Chinese goods. If any, the trade spat between China and the United States only saw countries such as Vietnam and Bangladesh benefit and not India.
• More currency or trade tariffs are not the solutions either. The central bank has lowered interest rates and there is some push to lowering the cost of capital for industry. But again, Indian industry will invest more only when demand for goods and services increases. And demand will increase only when wages increase, or there is money in the hands of people.
• So, the only immediate solution for India seems to be to boost consumption through a stimulus given directly to people, in the classical Keynesian mould.
• Of course, such a stimulus should be combined with reforms to boost business morale and confidence.

In sum, India's economic picture is not pretty.

It is important for India's political leadership to see this not-so-pretty picture and not hide behind rose tinted glasses. Prime Minister Modi has a unique electoral mandate to embark on bold moves to truly transform the economy and pull India out of the woods.

Important lesson from the past

• The Great Depression of the 1930s began with the collapse of the stock market on the New York Stock Exchange in 1929 and well over a decade. Since then we thought we had learnt to tame such a depression thanks to the General Theory of John Maynard Keynes, who propagated that the basic cause of a downturn was the absence of aggregate effective demand. This was a consequence of people’s preference to hold on to money at a time of uncertainty. It followed that there would be a fall in the rate of saving and investment.

• After the start of World War II, which presaged the recovery on account of the massive demand for armaments, Keynesian theory became the accepted wisdom in the developed world. There was, however, this rider: Fiscal conservatism is not desirable during a downturn in the economy and some deficit financing may be required even if it leads to a little temporary inflation. This was ridiculed specially by the Chicago monetarists, who claimed that a little inflation is like a little pregnancy which cannot remain “little”.

• Keynesian wisdom prevailed well into the Seventies with a further rider that there is a trade off between inflation and full employment. In other words, if full employment is the goal of policy makers, they should tolerate some inflation in the interim. If zero inflation is the goal, then full employment is unlikely. There was empirical evidence for this.

• The Great Recession 2008 was unquestionably a financial crisis beginning with irresponsible housing loans in America, which spread to the entire banking system in the Western world.

  So, comparing the two downturns, what lessons can we learn for India?

  • One important point brought out is that high growth and low-income inequality prevailed during the Keynesian years (1945-75) compared to the periods before and after that.

  • In India, income uncertainty and the desire to hold on to the money was in all probability triggered by demonetisation and later, by initial hiccups of the GST plan.

  • Macroeconomic policy, however, was more in tune with the Chicago school. That is, zero tolerance for inflation without concern for the possible impact on employment. The consequences are before us.

  • India has managed low levels of inflation and achieved targeted budget deficits, but look at the state of employment. Never have we had such high levels of joblessness. we are trying to control the disparity between the rich and the poor through taxing the upper layer without a care about declining growth numbers.

  What we need is low real interest rates and greater liquidity in the system to revive the animal spirits of businessmen. Only then can greater investment follow.