7 Reasons for economic stagnation in India

Since coming into power, the current government has failed to prove its grit on issues related to the Indian economy on more than one occasion

In the four years since coming into power, the current government has failed to prove its grit on more than one occasion. It is both the action and inaction on part of the incumbent administration that has culminated in this dire state of the Indian economy. It is simply not just a coincidence that the Indian economy is in shambles. Here are seven reasons that have given and led to this economic downturn in India:

1. (Un)Ease of doing business

Initiatives like Start-up India may have been launched with good intentions, but they are in fact, mere words on paper. Various regulatory bottlenecks, higher taxes and lack of access to credit have led to a steep decline in the number of start-ups in India from 12,267 in 2015 to 7,837 in 2016 to 2,654 in 2017.

2. Crisis in agriculture

Promises to double farmers’ income by 2022, raise the minimum support price to 50 percent over cost and providing farm loan waivers are all band-aid solutions to the fundamental problems plaguing the Indian agriculture sector. We need to give farmers access to the open market and not the government regulated mandis, so they can obtain remunerative prices for their produce. If we give the farmers an opportunity to freely and independently produce and sell in the open market, we will not need such populist measures before every election.

3. Employment

Despite the rise in economic growth, enough jobs have not been generated. A steady and consistent decline in employment was an immediate effect of demonetisation which was a failed policy measure even before its inception. Within six months of demonetisation, some 30 million jobs were wiped out and even after two years the job situation in India has not recovered.

4. The non-performing assets crisis

The rampant problem of bad loans in India as we know it today has been caused by the age-old license raj. Political discretion determines who gets what amount of loan. The inability and inefficiency of the public sector banks to operate in the banking sector can be seen by their contribution to bad loans. Against the 70% of total banking assets accounted for by 21 public sector banks in India, their contribution to bad loans is a staggering 86% of total non-performing assets in the banking sector. Makeshift solutions like loan write-offs worth crores or consolidation of small public sector banks will not solve the deep-rooted inefficiencies in public sector banks. The only permanent solution to the problem of bad loans that originated from public sector banks is for the government to gradually phase out of the banking sector.

5. Slow economic growth

Increase in the number of projects delays, lack of liquidity in the banking sector, and the rising NPA problem are all reasons for fall in investment by the private sector. A slowdown in net investments in India from 3.2 percent in 2014-15 to 2.4 percent in 2016-17 does not bode well for the economy which has undergone major disruptions like demonetization and GST. There is only so much heavy lifting the economy can do on the back of government dole outs.

6. Maximum government, minimum governance

Increasing public sector losses and rise in bad loans is a clear indication of the conspicuous waste of public money and resources. Despite ambitious disinvestment targets announced in budget after budget, there has been a steady increase in the number of CPSEs from 298 in 2014-15 to 320 in 2015-16 to 331 in 2016-17. Considering an increasing number of economic problems like rising taxes and unemployment, India needs minimum government and maximum governance, instead of the current mix of government-run chaos everywhere.

7. Oil prices

In 2014, when crude oil prices were low accompanied by a stable rupee, the incumbent government continued to heavily tax petrol and diesel which resulted in a doubling of their revenue from ₹99,000 crore in 2014-15 to ₹242,00 crore in 2016-17. Now that there is a surge in oil prices, a mere Rs 2.5 per litre price cut barely provides any relief to the Indian economy. Like any other commodity, if the price of oil rises, the demand will automatically adjust without any interference from government regulation. Hence, it is best to have no government regulation of any kind for oil prices.

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