Present Economic Slowdown-Some Reasons and Solutions

On 9.12.2019 A good article , interestingly from Bloomberg by Pankaj Misra has also dealt with the issue of slow down and its reason in very balanced and rational manner:

‘As India suffers another downgrade in global reputation, is the new narrative about India as simplistic and misleading as the old?

Certainly, it has long been clear that India, which failed to invest in primary education and health, did not have the human capital and infrastructure necessary for what it urgently needed in last 70 years after independence, a labor-intensive manufacturing revolution of the kind that made such “East Asian Tigers” as South Korea and Taiwan.

Economic growth in India was built on such shaky foundations as speculative finance capital and construction, and never seemed strong and consistent enough to generate jobs for the approximately million people entering the workforce each month.

Nor was India robust enough to contribute effectively to the Western coalition against China. It has not even come close to matching its neighbor’s economic performance.” https://www.business-standard.com/article/economy-policy/present-crisis-is-just-a-symptom-india-s-problems-started-much-before-2014-119120900060_1.html

However, India Today in last week edition has covered extensively on the reasons of this economic slowdown and reasons of Raghuram Rajan, our former Governor of Reserve Bank of India as major story.

Here are the five burdens Raghuram Rajan says PM Narendra Modi inherited from the UPA:

1) One of the legacy problems inherited by PM Modi was that a large number of stalled infrastructure projects “because of difficulties in land acquisition, lack of inputs like coal or gas, or the slow pace of obtaining government clearances”.

2)Raghuram Rajan identifies a problem in power production and distribution as an old legacy. “Existing power producers were running into difficulties as heavily indebted power distribution companies delayed payments or stopped buying. India experienced the absurdity of surplus power capacity even as power demand went unmet.”

3) Next was credit drying up in the market. With more and more promoters running into financial distress, bad loans increased on banks’ balance sheets. As a result, the flow of new credit slowed.

4) Agricultural sector too was in a “mess”. This was in part because of “decades of misguided” government interventions like distorted pricing and subsidies, that resulted in anomalies such as a water-short nation exporting water-thirsty rice.”

5) And then Rajan identifies past governments’ failure to eliminate hordes of middlemen in the agricultural sector as another problem when Modi became the prime minsiter in 2014. Instead of spending its scarce resources on improving farmer access to new technologies, seeds or land, the governments spent their resources on loan waivers. These loan waivers was “a form of misdirected cash transfer”.( https://www.indiatoday.in/business/story/economy-in-a-mess-raghuram-rajan-lists-5-burdens-that-modi-govt-inherited-from-upa-1625850-2019-12-06)

But more welcome for was that unlike others Rahu has given his 10 points plan to deal with slow down too:

1. LAND ACQUISITION: Accelerate the mapping of land and the process of establishing ownership titles, especially in the poorest states. Set up transparent processes to determine and alter land zoning, and to register changes in ownership. Make forcible land acquisition extremely rare. Ease acquisition procedures in rare cases while protecting the interests of sellers.

2. LABOUR: Allow more flexibility in labour contracts. Amend the law to allow for an intermeidate contract where workers gain rights steadily over time of employment but don’t have to be made permanent.

3. DECENTRALISE: Empower ministers. Engage states. Start by amending the terms of reference of the 15th Finance Commission. Don’t curtail states’ share of tax revenue.

4. INVESTMENTS: Stabilise tax and regulatory regimes and make them predictable. Discuss proposed changes publicly and give the industry time to adapt. Consider an independent economic watchdog agency to give investors confidence that the government won’t suddently set them back. Avoid leaning on an untrained judiciary for remedies.

5. DISINVESTMENT: Disinvestment isn’t primarily about raising resources. Avoid selling to already dominant family enterprises to avoid concentration of power.

6. REAL ESTATE/CONSTRUCTION/INFRASTRUCTURE: Fast-track bankruptcy for developers in default. Make super senior loans to insolvent developers to complete projects.

7. NBFCs: The RBI could do an quick asset quality review of the largest NBFCs. Give a clean chit to the well-capitalised ones. Give government funds for the undercapitalised ones only at a stiff price.

8. POWER: Ensure power is adequately priced and metered. Encourage competition among power distributors.

9. TELECOM: Preserve sufficient competitors in the telecom sector in the short run. In the longer run, re-examine regulatory processses to ensure a level playing field.

10. AGRICULTURE: Ensure easier access to inputs like seeds, technology, power finance and insurance. Allow land leasing and cooperative sharing of resources like tractors. Effect greater connectivity — both virtual and through logistical networks — of farmers to warehourse, rural industry and final consumers. Eliminate distortionary government intervention in pricing and procurement. Compensate farmers for withdrawn subsidies through direct cash transfer based on acreage. Enable some farmers to move out of agriculture, allowing economies of scale for those who remain.

(https://www.indiatoday.in/business/story/raghuram-rajan-plan-fix-indian-economy-10-points-1625829-2019-12-06)

I wish the readers and citizens of India will overcome soon this nightmare despair of the country’s slow down.

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