What can bolster slowing GDP growth? Check out this surprise answer

Nirupama Soundararajan & Manuj Joshi 3rd October 2017

Budget consultations must have begun in North Block. This is the last budget the Modi government has to make an impact before the general elections in 2019. Most believe that in view of the elections, the 2018 budget will be a populist one.

Budget consultations must have begun in North Block. This is the last budget the Modi government has to make an impact before the general elections in 2019. Most believe that in view of the elections, the 2018 budget will be a populist one. While many measures may well be populist, the budget also gives the Modi government one final chance to trigger economic growth and employment. Many have attributed the slowdown in the economy to demonetisation, to GST’s disruptive effect and even to high interest rates. Each would have an impact on growth; but these cannot be the only or even the most significant reasons for the slowdown. The main reason is the slump in private investments, the impact of which has been accentuated by the disruptions of demonetisation and GST.

The credit off-take for banking in India has been slow. Overall lending has contracted by 4.3% from the peak of Rs 27,454 billion in April 2016 to Rs 26,279 billion in July 2017. Data clearly show that the credit to the industry as a whole has declined since March 2016, with the major brunt being observed in infrastructure sector, chemicals, and other metals. It is not without reason that the lending volumes have declined. The twin balance-sheet problem continues to take its toll on bank lending.

Many corporate borrowers have been notorious for not paying back their loans. The Financial Express had reported a total number of 5,632 wilful defaulters who cumulatively owe Rs 58,775.5 crore...

Note: Views expressed in this blog are those of the author.