Dr Kapil Sharma
2020 when it started sounded fun just like 2020 cricket. No-one could have thought 2020 will achieve the dubious distinction of Year of Pandemic.
Almost all the countries worldwide are facing various challenges related directly or indirectly to Covid19. India is not immune to it either.
India is facing three immediate and grave challenges:
All these issue are inter woven and revolve around one Axis…China.
* ECONOMY. I shall not mince my words and accept Indian economy was going down the hill even before Covid 19. Many experts were even calling it in a tailspin. India was fastest growing economy with 6% plus GDP growth as normal. Many Pundits attributed economic growth slowdown to “Demonetization and GST implementation”. Well can’t be ruled out. I will call these two issues as minor speed breakers. The root cause of Indian economic slowdown is “Lack of Domestic demand”. India a Market of 1.33 billion is a mammoth growth engine itself. When 1.33 billion buys demand is generated industry supplies it. A well known game of demand and supply leads to booming economy.
THINK IT OVER
What happened suddenly Indian Public started buying less ? which resulted in less demand hence less production hence less economic growth.
Now question arises why all of a sudden Indians started buying less. Very reason for this is less cash flow or cash in hand depleted. Question arises WHY? Answer is because banks who were very liberal in giving loans all of a sudden went very strict. There was sudden squeeze of cash flow in market which resulted in people buying less and very game of ” Demand and Supply” suffered.
To understand why this happened we have to go back around 10 years or so.
After 2008 global economic meltdown during which whole world suffered losses India was relatively scratch free. ( Why! long story shall be discussed some other time). Round about that time Government eased lending norms. Banks were instructed to go on lending spree. All of a sudden if you remember banks were pleading Public to go for home, car, Personal, loans with very little formalities. This definitely helped Economy to pick up as there was cash available for everyone therefore public started spending, Game of Demand and Supply picked up so did economy. During this period if you remember there was Real estate boom. Noida, Gurugram, Mohali, Zirakpuretc started flashing as heaven for builders.
Loans were distributed not only to middle and low middle class but also to various Big Shots like Malya, Choksi, Amrpalli, JayPee etc.
Few years later when Raghu Ram Rajan was RBI Governor he realised various corporate sharks are defaulting as they have misused Government’s liberal policies. Slowly bank’s NPA ( Non Performing assets) were sky rocketing. These corporate sharks had taken loans from government backed infrastructure lending institutions like ILFS and Banks for infrastructure, Real estate and other projects. Defaults took place there as well and ILFS, IDBI etc collapsed. It resulted in a big blow to investors confidence.
Now coming back to RaghuramRajan and his reforms.
Raghu realised this NPA game can’t be allowed to go on for ever. He ordered banks to clean their balance sheets and put defaulters as well as Babjs to task. Banking Detox to be precise.
Result of this revamp was banks went extra cautious. They should have tightened noose around corporate bigshots but lower and middle class genuine borrowers also suffered. Result was sudden breaks on cash flow to market hence Less Domestic Demand.
Another blow to our manufacturing especially small and middle scale industry is heavy downpour of cheap Chinese goods.
“Made in china” killed our own small and middle size industry.
India was not manufacturing as it used to. Manufacturers became Commision agents.
Various free trade agreements opened doors for China. Our trade deficit with China kept climbing. China exploited WTO to the maximum.
Another reason which led to economic show down but was never highlighted was ‘Three month long election 2019.’ Three months election model poll conducted before election and formation of new cabinet almost two quarters of Policy paralysis was bound to result in Low GDP growth.
Lockdown started from March. Total economic shutdown took place, hence growth in minus is no surprise.
Above mentioned are various reasons for Indian economic slump.
Now I would like to share that worst is over.
Posts Covid19 Government took various policy decisions and pumped huge money as stimulus. All this is yielding results. Most indicators of Economic performance are in green. Automobile sales, Toll collection, electricity generation, Manufacturing index, Exports, GST collection, Real estate sales all are not yet back to Pre Covid19 levels but are more than last year same time.
Land reforms are facing lot of flak. Government failed to make farmers understand these reforms will free them from the stranglehold of middle men. Farmers will be able to sell their yield directly to consumers.
Aatmnirbhar Bharat is a wonderful initiative to revive our own industry. I am sure soon our indigenous small and mid size Industry will rejuvenate. Current financial year is going to be zero year for growth. Having said that following years are going to give us “V” shape Economic rebound. ECONOMY Is going to grow the way it fell in theshape of “V”.
Here Another very encouraging fact that I shall like to highlight is:
Despite slow Economic growth India never had “Balance of Payment” crisis. Our Foreign exchange reserves kept increasing. We were never in Pakistan type default condition.
Infact our external debt is almost at par with our Foreign exchange reserve almost in range of 550 billion USD Which is absolutely healthy.
Summarising economy India is on the track, worst is over, God forbid nothing unexpected event like Pandemic or war etc ever takes place again.
(The author is Ex Dental Surgeon Ascoms & Hospital)