unacademy 05th January 2019 Important Editorial Discussion(Hope with Concerns in 2019?) Presented By: Prabhakar Jha
India's growth rate in 2018-19 is forecast at 7.4% by the Reserve Bank of India (RBI). The Investment Ratio Issues The growth rate depends on the investment rate and the productivity of capital or its inverse incremental capital-output ratio. Solution For ensuring a sustained high growth, we need to raise the investment ratio and keep the incremental capital-output ratio at 4.
Banking system . Issues . An important factor affecting economic growth is the condition of our banking system. Non-performing assets (NPAs), including stressed assets, as a proportion of loans of public sector banks, stood at 16.7% as of March 2018. . As many as 11 public sector banks are under Prompt Corrective Action (PCA). This restricts the lending abilities of these banks. Added to this, the Non- Banking Financial Company (NBFC) system is also under stress. This is partly a reflection of the stress in the banking system since most NBFCs borrow from banks Today, banks are responsible both for short-term and long-term lending. Their inability to lend affects the availability of working capital as well as capital expenditures.
Solution Some have advocated providing more capital to banks outside the PCA framework as that will increase their lending capacity immediately. Recapitalization of public sector banks will partly solve the problem. It is not clear at this point how much it will help in adding to lending capacity The decision to pump in more capital to public sector banks must be completed soon. The growth rate in the industrial sector will depend on how quickly the banking system comes back to normalcy.
Employment growth Solution . Growth is around 7%, but As the IT sector growth rate is not likely to pick up significantly and industry is undergoing many structural changes, the revival of the banking system depends on a number of factors (including investment). Thus, even from the point of view of there is no corresponding growth in employment. . Growth can occur either as a result of the increase in investment or because of better utilization of existing capacity. . The increase in employment employment, the key factor is the pickup in investment. seen in the period between 2004-05 and 2009-10 was because of the rapid growth of information technology (IT) and financial sectors.
Agrarian Distress Issues .The future of growth also depends on the performance of agriculture. But, agrarian distress is widespread. Strangely, the fall in prices of agricultural products is in one sense a reflection of our success in raising output. Some years ago, the concern was a rise in the price of pulses to abnormally high levels. But today the picture is reversed. Similar is the case with respect to vegetables, particularly onion. . Solution Loan waivers are at best short-term solutions. There is also another basic weakness that we have to address. .The average size of landholding is so small that any amount of increase in productivity will not give adequate income. . Farmers have to think in terms of consolidation of landholdings so that they can get the benefits of larger size outputs. Small farmers will also have to think in terms of higher value added products like vegetables. . A combined attack to increase productivity, consolidate landholdings and improve marketing is needed to assure farmers of better income.
Enhancing Export Growth . India's balance of payment situation has been comfortable since liberalization. However, there are vulnerabilities as seen in September- October 2018, when the value of the rupee suddenly plummeted when crude oil prices rose and there were simultaneously capital outflows. RBI intervention and the subsequent fall in crude prices have restored the value of the rupee. . In April-November 2018, India's exports of goods grew by 11.6%. However, we need to note that exports growth was 5.2% (2016-17) and 9.8% (2017-18). Strong growth in exports is a must if we have to keep the current account deficit (CAD) at a manageable level. . The forecast for world trade and output is not encouraging. There are too many uncertainties which include an intensification in the trade war. Along with export promotion, we also need to contain some of our large imports. A watch on India's CAD is critically important if we have to achieve growth with stability.
GS And GA faculty @ Mahendra's Coaching Institute. Teaching Polity, and international relations for 7 years