BYJU'S IAS Economic Survey Part 2
Transcript of BYJU'S IAS Economic Survey Part 2
Regulatory Forbearance
● Pandemic has increased the distress in
the economies around the world and
India is no exception to this.
● The emergency measures such as
forbearance prevent the spill over of
the failures in the financial sector to the
real sector, thereby avoids the
deepening in the crisis.
● However this forbearance must be
used as a emergency medicine and
not as a staple diet.
The original sin - seven year forbearance
● The forbearance has had desired shortterm economic effects
○ GDP growth recovered from3.1% in FY09 to 8.5% within twoyears.
○ There was a markedimprovement in other parametersas well such as IIP, exports, etc.
○ Growth in total revenue of thelisted firms increased from 4.88%in the crisis year to 20% in 2011.
○ Growth in bank credit had fallento 16.9% in FY10 recovered to21.5% in FY11
The original sin - seven year forbearance
● During the Global Financial Crisis(GFC) the policy worked well butas the banks got the wind ofcontinuation in the policy, varioustypes of distortion’s crept in
○ The number ofrestructured loansincreased from 0.74% inFY08 to 6.94% in FY15
○ The gross NPAs of thebanking sector increasedmodestly from 2.2% inFY08 to 4.3% in FY15
Adverse impact of forbearance
● Undercapitalisation of banks.
● Lending to zombie firms.
○ Loans increased from 5%
(FY08) to 27% (FY15)
● Evergreening of loans.
● Failed to boost investment.
○ The Gross Capital Formation
(GCF) fell from 34.7% in 2008 to
28.7% in 2015
● Misuse of the funds by the
incumbent management.
● Performance of the firms
deteriorated.
Bank clean-up without adequate capitalisation
● RBI mandated AQR in 2015
● This clean-up is different in two
ways compared to the one done
in developed countries
○ It was done not in a year of
crisis
○ There was no forced
recapitalisation nor capital
backstop provided by RBI
Issues with AQR
● Underestimation of NPAs
○ PSBs added NPAs worth ₹ 5.6
lakh Cr between FY16 to FY19
● All the ways of evergreening were
not covered
● Underestimation of required capital
● Banks were unable to raise equity
capital from the market
● With banks reducing their lending
activities, their loans to investments
and capital expenditures have also
come down. Post AQR, the stalled
projects have increased
Implications for the current forbearance regime
● Withdrawal of such measures.
● Clean up bank balance sheets.
● Based on the capital requirements,
the clean up must be accompanied
with capital infusion.
● Improve the quality of governance in
the banks.
● Strengthen the legal infrastructure
for recovery
Innovation
● Technological Progress and higher growth rate in the economy
Global Innovation Index
Global Innovation Index
India’s innovation performance
● Though India has performed above
expectation on innovation w.r.t to its
level development, it lags behind
most other large economies
● India has performed in line with its
development, but ranks second
lowest after Brazil on the overall GII
Trends in India's innovation performance
● India has been improving its ranking under
GII from 81st in 2015 to 48th in 2020
● Though it has performed well, there’s still s
scope for improvement
● To put the things in perspective, China has
improved its ranking from 29th to 14th during
the same period and has put in place a very
ambitious R&D roadmap (China launched
MLP - Medium to Long Term Plan)
R&D expenditure in India
● India’s Gross Expenditure in R&D (GERD)
though is in line with development, there is
a scope of improvement
● Out of the total govt in India contributes
around 56% of GERD
● The business sector contribution is much
smaller
● Govt’s contribution to total R&D personnel
is 36% and researchers is 23%, the
highest among other top ten economies
India’s performance on patents and trademarks
● The total number of patents filed has risen
since 1999
● The patents filed by residents have
increased post 1999
● In case of trademarks the steep rise in
filings post 1999 is on account of
applications filed by residents
R&D activities in India
● India has been a attractive R&D
destination
● Tax incentives
● India has been able to translate the
investments in innovation inputs to
produce higher levels of innovation
outputs.
Policy implications
● Increase the GERD
● Business sector needs to step up
● Filing of patent applications
The Bare Necessities
● What are Bare Necessities (BN)
● BN are durable assets and some
have direct linkage to the health of
the members of households
Bare Necessities Index (BNI)
● Water (6)
● Sanitation (5)
● Housing (3)
● Micro-environment (4)
● Other facilities (8)
Findings
● Access to bare necessities is
highest in states such as Kerala,
Punjab, Haryana, Gujarat,
Uttarakhand etc
● Inter-state disparities have declined
both in rural and urban areas
● The access has improved
disproportionately more in case of
poorest households when compared
to the richest households across
India
Findings
● Health outcomes
● Education outcomes
Fiscal Developments
● Fiscal policy along with the monetary
policy emerged as the effective
policy tools in the times of crisis
Fiscal situation and response to covid
● Classification of ministries
● Increased capex
● Increased market borrowing
● Reforms in taxation
Trends in govt finances
● Revised market borrowings and FD
● Transfer to states – 15th FC
● Central govt debt
Central govt debt
Central govt debt
Central govt debt
General govt finances
External Sector
● As per WTO, merchandise trade will
drop by 13 to 32% in 2020, however
post the easing of lockdown, the
trade has been picking up in the
months of June and July. WTO
accordingly revised the contraction
to 9.2% with a growth rate of 7.2% in
2021
External Sector – cushion for resilience
● Current account surplus
● Resumption of portfolio capital inflows
● Robust FDI inflow
● Huge forex reserves
India - “pharmacy of the world”
● India has almost doubled its share in
global exports in a decade from
1.4% in 2010 to 2.6% in 2019
● Global pharmaceutical market is set
to exceed US $ 1.5 tn by 2023.
India’s pharmaceutical industry is
currently valued at $41 bn and is
expected to grow to $65 bn
● Issues
○ Excessively dependent on
imports
India - “pharmacy of the world”
● Govt has implemented Production
Linked Incentive (PLI) to promote
production in this industry
● Strategy
○ Should broaden the base
○ Restructure current regulatory
mechanism and upgrade and
build capacities at various
National Institute of
Pharmaceutical Education and
Research
○ Greater R&D expenditure
External Sector – data
● Current Account
○ India’s CAD averaged 2.2%
of GDP in last 10 years
○ In the Q4 this trend
reversed with a CAS of
0.1% of GDP
External Sector - Data
● External Debt
○ At the end of September 2020,
India’s external debt reached
$556.2 bn
○ Has reduced by $2 bn i.e. 0.4%
compared to March 2020 levels
● Exchange rate and forex reserves
Initiatives to promote exports
● Trade Facilitation Agreement (TFA)
● RoDTEP
● PLI
India & WTO
● Appellate Body
● Issue of public stockholding
● Fishery subsidy
Monetary Management and Financial Intermediation
● Monetary Developments
○ Accommodative stance
○ Reduced repo and reverse repo
○ In later part has held rates
Liquidity Management
● OMO Purchases – ₹ 2.7 lakh Cr
● TLTRO - ₹ 1.13 lakh Cr for
investment in corporate bonds,
commercial papers and non-
convertible debentures
● ₹ 1.25 lakh Cr through LTRO
● Reduction in CRR from 4 to 3%
● Raining the limit for overnight
borrowing for the banks from 2% to
3% of NDTL
Banking Sector
● Monetary Policy Transmission
● Transmission has improved since march 2020. It is because of reforms/measures such as
○ External benchmarking
○ Policy rate cuts
○ Accommodative policy stance etc
● Weighted Average Lending Rate (WALR) on fresh loans declined by 94 bps between March to November 2020 in response to reduction of 115 bps repo rate
○ PSBs exhibited greater transmission
Regulatory measures in banking sector
● Merger of PSBs
● Restructuring of MSME loans
● External benchmarking
Cooperative banks
● PSL increased from 40% to 75%
● Amending Banking Regulation Act
○ RBI can issue directions relating to
management of UCBs
○ RBI – approval of appointment / removal of
statutory auditors of UCBs
○ RBI can supersede the board of directors
○ Allow the UCBs to raise equity capital
○ RBI is empowered to sanction
voluntary/compulsory amalgamation and to
prepare scheme for reconstruction of a UCBs
Digital Payments
● Overall transactions worth ₹ 19.35 lakh Cr have been done under UPI and ₹ 1.02 lakh Cr under RuPay cards in 2020-21 (up to October 2020)
● RBI-DPI consists of 5 broad parameters
○ Payment Enablers (weight 25%)
○ Payment Infrastructure – Demand-side factors (10%)
○ Payment Infrastructure – Supply-side factors (15%)
○ Payment Performance (45%)
○ Consumer Centricity (5%)
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