India's great slowdown (Factors behind the economic slowdown 2019-20)

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 India's great slowdown (Factors behind the economic slowdown 2019-20)

Read more on - Polity | Economy | Schemes | S&T | Environment


    • An ill economy: India's GDP growth data are worrisome, but the separate datasets are showing a deeper problem. Examples - (a) production of consumer and investment goods is down, (b) exports and imports are in negative zone, (c) real govt. revenues are in negative zone.
    • The Great Slowdown: Regular methods by RBI and government to pull the economy back from the brink aren't working. Why? Because RBI's monetary policy is useless due to little transmission, and government's fiscal stimulus is impossible due to fiscal deficit being more than 10%. (unofficially) [so bigger bond issues will crowd out private sector totally]
    • Two waves of balance sheet crisis: This stage arrived after two shocks.
      1. First - the Twin balance sheet crisis: It came after 2007's global financial crisis, when Indian infrastructure projects started faltering. So banks who lent to them were hit. Two engines of GDP - investments and exports - went bad.
      2. Second - collapse of NBFC credit boom: NBFCs had led the credit growth in India, centred on real estate. As housing remained unsold, NBFC credit (to retail) dried up.
    • Four Balance Sheet problem (FBS): Banks, infrastructure companies, NBFCs, and Real Estate firms - are the four sectors in trouble now.
    • What to do: Start with AQR-2 - a new asset quality review programme, to get a real picture of how bad it is, and then strengthen IBC in parallel. Focus on real estate and power first. These are special, as commercial and social considerations go hand in hand.
      1. Real estate - Developers took money from buyers in advance (pre-selling), and when they went bankrupt, buyers got neither money nor flats. IBC process won't help due to technical issues as well as time taken to resolve. Only way out is a speedy settlement for recovering some part, with some more govt. subsidy thrown in.
      2. Power sector - Private developers cannot be sold easily, due to losses, although plants are technologically good. Today, supply outstrips demand too. Since government policy decides success or failure in this sector, solution has to be from government. Create a "Bad Bank", and take over the Rs.2.5 lakh crore of bad loans (freeing the Banks from that headache). Sell some of the power plants after reducing debt, and 'warehouse' the rest till they can go back to private sector. Do it all via a holding company.
    • Two bad banks: To crack the Great Slowdown, India needs two Bad Banks targetting the four balance sheet problem.
    • Summary : India now needs two 'bad banks' to tackle the 'four balance sheet problem', to ensure that the Great Slowdown is handled well.
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                                                                                                                                                    PT's IAS Academy: India's great slowdown (Factors behind the economic slowdown 2019-20)
                                                                                                                                                    India's great slowdown (Factors behind the economic slowdown 2019-20)
                                                                                                                                                    Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!
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