‘Indian Economy in ICU’: Will 2020 Be a Better Year for Economy?

For 2020 to be a better economic year, the government needs to attend to a few key issues urgently.

The govt needs to buckle up to improve economy in 2020

(Photo: The Quint)

Video Editor: Mohd Irshad Alam

2019 has been a bad year for the Indian economy and one can only hope that 2020 sees it get better. With economists and the public saying the ‘worst is over’, people are hopeful.

Despite the GDP projections being a 6 percent rise next year, former Chief Economic Adviser Arvind Subramanian said, “The Indian Economy is in the ICU.”

Previously, there would be two balance sheets based on which the Indian Economy was measured, namely that of banks and big corporations. But now two more have been added – non-banking finance companies or NBFCs and real estate.

Besides the aforementioned sectors, there are several factors that have contributed to the state of the 2019 economy:

• GDP has crashed
• No tax reforms
• The manufacturing industry has collapsed
• Agrarian crisis

To control the economy, the government recapitalised the banks and rolled out tax incentives for domestic companies. But that did not increase the rate of investment. Investment, which is directly proportional to credit offtake, did not increase because the credit offtake did not increase in the commercial side of things.

Experts believe that had these incentives been given to the public, especially in rural areas or to cottage industries, investment could have been increased.

The power sector and the cement sector are in bad shape. The power sector is producing 50 percent less electricity because there are no buyers. While cement’s production rate is low too, directly translating to a lack of scope in infrastructural development. All the money for developmental projects is coming from the government, thus, depleting funds to be spent on rural schemes and yojanas.

The government says that the fiscal deficit is at 3.5 percent while economists say that it stands at 5.5 percent. This points fingers at data’s credibility and accuracy, which is crucial for foreign investment because the discrepancy in data is what’s driving investors away.

Many attribute the current ‘worst is over’ situation to the Lehman Brothers’ crisis but that is disillusioning.

The problem lies in core and structural reforms.

The government needs to shift its focus to a lot of sectors, primarily the banking system, which needs to be fixed. Another sector that needs fixing is Railway. The construction sector has potential as well.

But above all, the need of the hour is to increase employment, especially in rural areas, which would ultimately increase foreign investment in the country. But with all the talk of foreign investment, India is still not ready for the same, and this raises the question:

Why is the government not reacting efficiently?

It is possible that the government is ready to let the economy suffer for another year for political reasons and pick up the pace in 2021. So, it is quite likely that your investment goals can be achieved in 2021 and not in 2020.

Disinvestment, banking bottleneck and NBFCs need to be attended to urgently.

On the other hand, the share market has never witnessed such a degree of polarisation in history, wherein large cap companies are receiving all the money and are now overvalued. No money is going to small industries, resulting in the return on capital being close to nil.

For personal investments, taking advice from an expert is necessary because the market will be volatile for a while. Mutual funds are a great way to get into the share market.