Great Indian பொருளாதார மந்தநிலை  | தமிழ் (With Eng subs) | Finja

Great Indian பொருளாதார மந்தநிலை | தமிழ் (With Eng subs) | Finja

Hai Welcome to Finja! I”m Nithun Recently we must have heard about CAB (Citizenship Amendment Bill) and NRC ( National Register of Citizens ) and the protests going on regarding the same. A popular meme in social media is Both these bills are a diversion from the economy that is in tantrums So what is the reason behind India’s economic slowdown? And can be done about it, is what we are gonna we about in this video. Arvind Subramanian Former Chief Economic Adviser to the Government of India and Josh Felman Published a paper @ Harvard university The title of the paper is India’s great slowdown. What happened? What’s the way out? The link to the paper is given in the description, which you can read. I am gonna narrate the paper as a story To realize a country’s economic state, an important indicator is GDP (Gross Domestic Product) GDP is calculated every year and also for a quarter One financial year is from April 1 to March 31 A quarter is 3 months 1 Financial year is divided into 4 quarter- Q1, Q2, Q3 & Q4 So India’s GDP growth rate in this year’s second quarter stood at mere 4.55% This low a GDP growth rate was present way back during 2013 Each of the sectors also paints a dim picture If we look at the electricity generation; its growth rate has been worst in almost 3 decades The earlier economic slowdown have happened in 1991 & 2002 But it is said that this slowdown is worse than the previous slowdowns The Great economic slowdown is said to be both puzzling and frustrating. The reason for it being puzzling is because… Until 2 years ago India’s GDP stood at around 7% Among the major economies, India was the fastest-growing economy Nor has the economy been hit by any
of the standard triggers of slowdowns, what Harish Damodaran has called the 3 Fs Food harvests hadn’t failed. World fuel prices haven’t risen. The fisc has not spiraled out of control All this made the situation puzzling The reason it was frustrating was because Government and RBI Tried a lot to boost the economy The government reduced corporate taxes significantly The reason for reducing it was to improve investments in corporates thereby boosting the economy 4 PSU (Public Sector Undertaking) have been privatized Thereby boosting the economy What the RBI did was… It reduced the interest rates To understand this We have to see how the banks earn money Banks borrow money from the RBI for a certain interest rate For an increased interest rate, the banks give loans to the public So this way banks used to earn So when RBI reduces its interest rate, banks begin to borrow more money Now since more loans are provided for the public, they spend more, thereby boosting the economy. So these were the reasons for it (economy) be puzzling as well as frustrating So lot of analysts gave lot of explanations for the economic slowdown But none of them were satisfactory explanations The given explanations were put into two baskets One being Structural factorsCyclic factors A temporary issue where something happened because of this First, if we look at the structural factors For many years there haven’t been any significant change in land restrictions and labor laws So, that is why the economy has taken a hit Aravind Subramaniam did not accept this. The reason being… For 2 decades it was the same case (No significant change in the two laws) So for 20 years, the GDP wasn’t affected by these much. Suddenly this is the reason isn’t acceptable. Another structural factor is the income inequalityDuring the 2000s a small group of people benefited a lot from the IT boom So they earned a lot And they spent it as well Thereby boosting the economy However, after 2010 The growth of IT wasn’t’ as it used to be So that could be a reason why the economy is tumbling Aravind Subramaniam rejects this proposition as well. The reason being… He argues that India’s growth in the past decade was primarily driven by the Investment/Export boom. Coming to the cyclic factors… GST ( Goods & Services) tax and Demonitisation These must be the culprits These were recent happening and they must be the reason behind the slowdown. Aravind Subramaniam rejected this as well. The reason being… He pointed out that key economic indicators were still doing fine despite these troubles (GST & demonetization) So he never accepted any of these explanations So WHAT exactly is the problem that he is suggesting, you might ask… That’s what we are gonna see about next. So Aravind Subramaniam and Josh Felman The reason for India’s economic slowdown is Four Balance Sheet Problem What is balance sheet, you might wonder Its is a company or a person’s Assets as well as liabilities The four balance is said as 2 BS problem + 2 BS problem The first two are old twin BS problem The other 2 is the new twin BS problem The four put together is the four twin balance sheet problem So if we look at the first twin BS problem In 2008, there was global financial crisis The world economy took a great hit at this time During that period, the infrastructure companies in our country Based on the high growth before 2008, betted a lot on the future and risked it by borrowing a lot from the banks to invest in infrastructure. But, during the global financial crisis, they suffered huge losses on their investments. So they weren’t able to repay the loans and started to default. So their (Infrastructure) balance sheet got damaged This was the first old twin BS problem The next problem is The banks who gave loans to these infrastructure companies were unable to retrieve the loans from them (Infra companies) So what the banks did was The banks tried to cover it up by extending new loans to these companies and help them pay out the old ones. In 2015, the RBI came into the picture Realized what was happening and plugged the holes So this was the second balance sheet problem After this These two were old twin BS problems i.e during 2008 to 2015 After this time, since the global oil prices were low The economy was coming up to a certain extent Now what happened was The problem in the real estate sector Developers had invested huge amounts in the real estate sector But they could not sell their projects They (Developers) thought they could sell it at huge margins But people were not ready to buy it So what happened was, they(developers) were unable to pay back the loan as well. If we look at why? So prices are high? Just reduce the prices, right? But they could not reduce the prices,because… Say if a house costs 4 crores They would have got loans by showing the house as collateral So if they reduce the price, the value of the collateral would also get reduced. So they couldn’t reduce prices. So since they could not sell the their projects, their investments began to sour So real estate sector took a big hit So this was the third balance sheet problem The fourth is… As banks started reeling from the bad loan problem The one which came to steady the ship was the NBFC (Non Banking Financial Corporations) NBFC’s do not have actual banking license They cannot take savings or deposits from the public But, they provide loans to customers based on the collateral they pledge. So they (NBFC) started lending a lot of money Banking is one system which relies on trust What happened was… Only in 2018, the ILFS issue came to light Infrastructure leasing & Financial Services company In 2018, they started to default as they had gave huge loans to the real estate players So this also led to a huge problem So these four BS problems which had both structural and cyclic factors led to the Great Indian economic slowdown is what Aravind Subramaniam and Josh Felman have said in their paper What is the remedy for this will be seen in a later video Stay tuned! Tell me what you think in the comment section below

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