Alternatives to revive the economy

The economy is in the state of liquidity trap as highlighted by Keynes during the time of depression. It depicts the period when lowering interest rates has ceased to affect demand of funds. It has happened in Japan and the Euro region, where interest rates have lost. The consumption has slowed down which means that the surplus capacity in industries which made further investments remains unviable as of now.

Ingredients required to get on track

Financial sector – It started with the Asset quality review of the PSBs and then the Private Banks. The NBFCs crisis has lead to a blow out affecting infrastructure finance, real estate and SMEs, thus choking the financial system. The NPAs on bank’s books need to be set right to ensure the health of the financial system improves.

Rural economy – It holds an important place in the recovery process and hence optimal output and price are key to demand recovery. Any disruption as in the case of vegetable and pulses, can have inflationary implications making monetary policy difficult to conduct. The government needs to make farming more attractive which should be run as commercial venture rather than through sympathetic loan waivers. The policy needs to aim at increasing land productivity and provide end to end solutions.

Job creation – It is necessary to generate sustainable income to generate demand. Unless more households are present with a spending capacity, consumption would not increase.

Education system – The education system should bring in courses as per the requirement of the industry so that India can create a future ready workforce. As demand grows, these requirements can be appropriately addressed.

Long term solutions need to explored because of the presence of legacy issues. The environment of doing business at micro-level needs to be improved and the structure involving multiple clearance needs to be done away with.

Topics: GS-III: Indian Economy Issues Relating to Planning