Towards The Hindu Rate of Growth, 3.5%.

Anurag Verma
3 min readJan 18, 2020

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Decline

The Finance Ministry is bustling in an attempt to get ready with an optimistic budget, to be presented within two weeks. However, in the face of an economic slowdown and consistent criticism of economic mismanagement from renowned economists and central bankers, the Indian economy looks bleak for 2020.

The years of major economic reforms such as the enactment of the Insolvency and Bankruptcy Act, 2016 (IBC) and Goods and Services Taxes (GST)has failed the economy. In 2016, the government wanted to reduce budget deficit through fiscal consolidation but at the same time, most public sector banks (PSBs) were contracting under mounting Non-performing assets(NPAs), to an extent that Gross NPAs stood at 7.3% of total loans in the fiscal year 2015–16. Thus, in a bid to recapitalize the public sector banks, so that the credit market could be boosted, the government hastily came up with IBC with expectations to revive a major part of PSBs bad loans through a time-bound resolution of NPAs. Touted to be a revolutionary move, the IBC had limited success and suffered loopholes, most major claims admitted under it are overrunning the set limits of 270 days for corporate, and 135 days for individual and Limited liability partnerships. This lead to a situation where banks couldn’t roll out new credit due to lack of capital, which resulted in a reduced credit growth of 8.3% in 2019, directly impacting the investments and job creation. For the first time in the history of the Reserve Bank of India, the government had to raid its treasury of two lakh cores to facilitate corporate tax cuts by amending the Companies Act, 2013 and even a tax cut from 30% to 22% couldn’t drive in investments.

Under the hastily implemented GST, tax collection reduced to an extent that the central government is yet to transfer dues to state governments, business losses are yet to be revived. The unemployment rate has reached the highest since 1974, even the production of fast-moving consumer goods has declined and the Comptroller and Auditor General of India has recently reported a budget deficit of around 5% in 2019. As the year came to an end amidst major civilian protest against the Citizenship (Amendment) Bill, 2019 and National Register of Citizens, the government found bliss in an increase of 1.8% in industrial production while Gross NPAs declined after a long time. An expansive Union Budget for 2020 could make the Indian government borrow from the market via Public sector undertaking companies(bonds), further increasing the budget deficit for years to come. Given the recent record of the government, it may look to control retail inflation and recapitalize public sector banks by reducing its expenditure on welfare schemes and public infrastructure projects. And even if it couldn’t, don’t worry, the Finance minister doesn’t eat onion and the Prime Minister is a great economist.

Note: The post was written fulfilling the requirement of a certificate course in Public Policy.

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