The term “Indian economy” refers to the economic system of India, which is one of the largest and fastest-growing economies in the world. Ranked as the fifth-largest by nominal GDP, India is an emerging economic powerhouse with a diverse economic structure. As a developing country, India follows a mixed economy model, incorporating both public and private sector elements. While the government plays a significant role in regulating and overseeing essential sectors like defense, infrastructure, and transportation, it also encourages private enterprise and foreign investment to drive growth in other industries.
Historically, India’s economy was predominantly agrarian, with a large portion of the population engaged in agriculture. However, over the past few decades, the country has undergone significant economic transformations. This change was marked by the liberalization of the economy in the 1990s, which opened up markets, reduced trade barriers, and attracted foreign direct investment (FDI). These reforms played a key role in integrating India into the global economy and propelled growth in sectors such as technology, manufacturing, and services.
The services sector, particularly information technology (IT), telecommunications, and business process outsourcing (BPO), has emerged as a cornerstone of the Indian economy. In parallel, India’s industrial base has also expanded, with key areas like automobile manufacturing, pharmaceuticals, and steel production contributing to its development. This growth is further fueled by India’s large and growing domestic market, driven by an expanding middle class, rapid urbanization, and a young labor force.
India’s trade relations have evolved over the years, with significant partnerships formed with countries such as the United States, the European Union, and China. However, India faces a growing trade imbalance with China, importing more than it exports. Additionally, the depreciation of the Indian rupee has led to challenges like inflation and rising import costs.
With respect to GST, the government was in a fix. The 101st Constitutional Amendment allowed only one year life for old tax laws like VAT., Central Excise and Service Tax, which would expire on 30th Sept 2017. Politically, the government also needed at least one year buffer time to iron out the adverse effects of GST. So, it was a do or die situation for the government. The other alternative was to defer GST implementation to the next elected government. In view of Constitutional amendment, this option was more or less closed. Such deferment would have required another Constitutional Amendment to restore old laws, two thirds majority approval in Parliament and ratification by 50% of the States. That would have been unthinkable. Anyway, GST was a structural reform, which was bound to happen sooner or later.
Since when has it become prudent to judge a bank by one parameter alone? here the author is looking only at deposit vis a vis market capitalisation. In a falling equity market it is but natural that share prices are affected by bearish sentiment and hence market cap is affected in such a scenario. It is also common that in the absence of stability in investment avenues like share market, gold, real estate and nbfc bonds the natural flow of savings is into bank deposits. In such a scenario which is prevailing now in the country deposit growth is being measured against a lower market cap position thus leading to an unfavorable ratio. It is but natural that those Pvt sector banks which have higher shareholding with foreign investors will have a higher equity base. As per the government’s policy, foreign investors can invest up to 74% of paid-up capital in private sector banks. Hence those banks with higher FDI investors have higher equity than those Pvt sector banks which have only domestic investors. This is not a major concern as a bank’s health is determined by its profitability, NPA ratio and capital adequacy ratio.
The Basel III norms stipulated a capital to risk weighted assets of 8%. However, as per RBI norms, Indian scheduled commercial banks are required to maintain a CAR of 9% while Indian public sector banks are emphasized to maintain a CAR of 12%. All banks in India have to follow Basel III norms for computation and reporting of capital adequacy ratio. One of the so called weak banks as per this silly article is Federal bank which had reported car of 14.14% as at mar-19! Incidentally the bank also reported it’s highest ever net profit in the second quarter ended sept 2019.
Why did the reform have to be disruptive? Has it been disruptive because it was not implemented well? That Indian economy needs to be formalised there is no doubt. But was this the only way?
And for the author real people seem to be ghosts who simply suffer collateral damage.
This is Mao and Stalin style dirigismo.
Good analysis.both Demonetization and the poor implementation of GST have severly affected the economy.The demand side has been seriously affected.unfortunately the govt refuses to see the reality.The financial policies are being shaped by babus with limited vision who have to please the govtEven the few economists in the govt have to fall in line.We need bold policy decisions.we are heading for a major recession!
The govt is hiding behind false statistics to cover up its failures!
The suggestions by Yashwant Sinha and others to increase demand by increasing Govt investment in large infra projects and via expanded MNREGA probably indicates the best way to restart the demand cycle. The earlier Congress idea of a basic income for the poorest 25% of families is another idea. But we need a Govt that is shorn of ego and grandstanding and is willing to look at good ideas from any quarter.
Ultimately, formalisation of the economy is a must for a country of the size of India. We cannot do juggad all the time. The attitude towards laws and rules need to change as well by the govt as well as the general population
Within days it was clear that Demonetisation was an unmitigated disaster. In two months, all the currency was back. It shaved 2 to 3 per cent from growth, and for a longer period than anyone could have foreseen. Given this background, there ought to have been a lot of caution in proceeding with another subcontinent sized disruption. That is where political judgment, more than economic expertise alone, comes into play.
Great Analysis