Hope with concerns in 2019 (Indian Economy's core issues)

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 Hope with concerns in 2019 (Indian Economy's core issues)

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• How was 2018? The growth rate globally was high, and US did very well. Then came the trade war between US and China, impacting future hope. In parallel, a botched-up Brexit harmed sentiment in Europe. For India, Q1 GDP growth was good, but not  thereafter. Rupee was hurt badly due to sharp rise in crude prices.
• For 2018-19 on the whole : India's GDP growth may be close to 7.4% or lower, and 2019 may not push it up further. The GST has stabilised, but investment rate is the key now. India's foreign trade is not being helped by global sentiment.
• Five major concerns : Indian economy faces 5 big issues.
• These are -

1. INVESTMENT RATIO - The productivity of capital or investment rate ultimately decides the GDP growth rate.
1. We use the term "Incremental Capital-Output Ratio (ICOR)", which depends on factors like quality of labour, education and skill levels, technology, etc.
2. India needs a high investment ratio, and an incremental capital-output ratio of 4.
3. The GFCF has gone down from 35.8% in 2007-08 to 28.5% in 2017-18. 'Animal Spirits' must be revived.
2. BANKING SYSTEM - The condition of our banks decides economic growth too.
1. The NPAs (including stressed assets) as a ratio of PSBs‘ loans were 16.7% in March 2018, and 11 PSBs were under PCA framework.
2. In parallel, the NBFC sector is under stress due to IL&FS crisis and as NBFCs borrow from banks.
3. How to resolve? Recapitalise the banks. Indian banks lend short-term and long-term both, and their bad condition affects both working capital and capital expenditure.
4. If recapitalisation is to be done, it must be done quickly.
3. EMPLOYMENT GROWTH - We just do not have enough overall reliable data to debate over the serious concerns over poor jobs growth rate.
1. Organised formal sector data is reliable, but informal sector is much larger and data unreliable.
2. A simple question is that with 7% GDP growth, where are the jobs? The answer is twofold.
3. First, newer jobs will appear only if newer investments are being done, and not merely by better utilisation of existing capacity. In the past few years, most of India's GDP growth is not due to new investments!
4. Second, rapid growth of IT and Financial services in 2004-09 period led to rapid jobs growth. Both have slowed down.
5. Since IT is undergoing structural changes, expect no major uptick in fresh jobs there. 
4. INDIA'S EXTERNAL SECTOR - We are well-integrated with the world now, and our trade in goods and services is 42% of our GDP now.
1. Since 1991, our balance of payments situation has been comfortable.
2. But sudden depreciation of rupee is a big vulnerability. That was due to sudden crude oil price rise. And sadly, we also had capital outflows (FPIs).
3. RBI intervened, and luck also did!
4. Strong exports growth is a must for India  now if we want to control our CAD levels (current account deficit).
5. 2019 forecast for world trade is bad, so India must contain its imports a bit.
5. AGRARIAN DISTRESS - It is widespread, and our huge success in raising our output reflects in the fall in prices of agri products!
1. Few years ago, very costly pulses was a concern. Now it's the reverse! Same for vegetables like onions today.
2. Farmers want an increase in income in current prices.
3. Govt. can buy the surplus over normal supplies from the markets at MSPs.
4. But does the govt. have the money to do it? Does it have the physical infra to procure? Answers are no, and no.
5. If yes, then procure and sell in later years during lower output.
6. Loan waivers are a bad idea, and we must focus on better productivity and higher prices.
7. Land consolidation is a must now, given the very small holdings.

• Summary : So we have handle our economy better through - raising the investment ratio, putting banking on track, raising new jobs, improving exports and removing agrarian distress.CONCEPT
• Though the Indian economy is doing good on GDP growth rates, there are five basic issues that need our attention in 2019 to ensure a balanced and equitable growth.

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