THE GIST of Editorial for UPSC Exams : 31 MAY 2019 (Challenges in giving shape to the economy (The Hindu))

Challenges in giving shape to the economy (The Hindu)

Mains Paper 3 : Economy
Prelims level : Non-Performing Assets
Mains level : Reshaping the economy to curb the Non-Performing Assets

Context

• The new government is inheriting an economy that doesn’t appear to be in great shape. The actual GDP numbers and the unemployment figures can be debated but there appears to a broad agreement that despite being one of the fastest growing economy in the world, it faces serious challenges.
• Some of these challenges are on account of the factors beyond the national boundaries but quite a few of them emanate out of actions and inactions within the country.
• Let us look at some of the challenges and the possible way forward.

The NPA time bomb

• Scheduled banks are sitting on a ticking time bomb of Non-Performing Assets (NPAs).
• Infusion of huge amount of capital by the government in the public sector banks has had no significant improvement in the credit flow from the banks.
• The problem is not merely of liquidity it is one of crisis of confidence in the banking industry.
• Fixed investments have been stagnant at 30 per cent of GDP during the past few years. Make in India hasn’t travelled the distance it was supposed to. After driving substantial FDI initially, it has slowed down. Private domestic investment has virtually dried up.
• Unemployment is the biggest challenge.
• Employment figures have been contested. However, if the “leaked” NSSO data is to be believed, the unemployment rate of 6.1 per cent would be the highest in the past 45 years.

Steps need to be taken

• Effective steps need to be taken by the new government on various fronts.
• Mere statements and announcements will not help.
• Some concrete measures will have to be initiated on the ground.
• International factors like the Iran crisis, the US-China trade relations and increasing protectionism amongst the developed world are by and large beyond the control of the government.

Way ahead

• However, a lot can be done within the country.
• The new government will have to first admit that there are indeed serious problems that afflict the economy.
• Without such an admission, the issues cannot be addressed.
• This should be followed by a well-defined, practicable action plan to address each of the issues.
• Revival of credibility of institutions is imperative.
• RBI should be allowed freedom on the monetary policy front and should be tasked with sorting out the “mess” in the banking industry.
• The objective should be to ensure easy availability of credit that afflicts various sectors of the economy.
• GST related processes have to be streamlined.
• Glitches in the IT backbone also need to be sorted out.
• Improvement in GST collections will ease the pressure on fiscal deficit.
• On account of the powers vested in those that are likely to make assessments of returns, there would be a number of operational issues. These will need to be resolved.
• On the expenditure front too, leakages continue to be a source of major concern. Aadhaar can be used as an effective tool to prevent leakages but the controversies around the use of Aadhaar will have to be sorted out.
• MSMEs have enormous employment potential.
• Hence, this segment will need to be encouraged. Issues relating to factors of production (land, capital, labour, taxation, electricity, transport etc) should be addressed. Demonetisation and GST have impacted this sector adversely.

Investment worries

• Private sector investment continues to be low despite India climbing up the ladder on ease-of-doing-business.
• The “ease” has to get reflected in private sector investments.
• The Project Monitoring Group (PMG) set up by the UPA 2 needs to be revived at the central level and instituted at the State level as well.
• The PMG could fast track investment clearances even during a regime that was notorious for scams. Fast tracking of clearances will boost investor confidence.

It will also enable streamlining of processes.

Improving Human resource management

• Human resource management is the key to making things happen on the ground.
• Leaving top management posts vacant (e.g. coal production suffered during 2017-18 on account of absence of full time CMD) will have disastrous consequences.
• It is difficult to fathom why critical posts are kept vacant when it is known well in advance when they will fall vacant.
• Finally, efficiency and integrity will have to be the primary criterion for manning these posts.

Way forward

• However, the industrial slowdown (industrial production fell for the first time in March 2019 since 2017) is likely to impact the deficit.
• According to some estimates, the Centre’s revenue growth during 18-19 is likely to be only 6.2 per cent instead of 19.5.
• The current account deficit (CAD) is currently around 2 per cent of GDP but is under enormous pressure.
• The brewing Iranian crisis and the trade tensions between the US and China do not augur well. The rupee has been sliding for a while.

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Prelims Questions:

Q.1) Consider the following statements regarding Bhartiya Shiksha Board (BSB):
1. It is to be set up to affiliate schools that offer a blend of Vedic and modern education.
2. BSB is being constituted under the ambit of the Central board of secondary education (CBSE).

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: A
Mains Questions:
Q.1) What are the key challenges to shape the economy?