Question Bank


When:
November 17, 2018 @ 2:00 pm
2018-11-17T14:00:00+05:30
2018-11-17T14:15:00+05:30
Question Bank

17th November 2018

QUESTION BANK

(1 Question)

Answer questions in NOT MORE than 200 words each. Content of the answer is more important than its length.

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GS III: INDIAN ECONOMY

https://www.thehindu.com/opinion/lead/getting-the-economy-back-on-track/article25521145.ece

Q1. Do you think that the growth of the Indian economy has slowed down? Give reasons to support your answers.  

Ans.

  • The slowing down of growth in the Indian economy today can be assessed from the following facts:
  • One, the growth rate of the economy with proper index number-based GDP has declined over the last two financial years.
  • Two, household savings, which are the bulk of India’s national investment, dropped from a high of 34% of GDP to about 24% of GDP in 2017. Non-household savings are about 5% of GDP. This decline happened even before demonetisation and the decline continues because of intrusive and sometime obnoxious tax measures.
  • Three, non-performing assets of the public sector banks (PSBs) have also risen sharply, in fact at a rate of growth much higher than the rate of new advances of these banks, making many large PSBs financially unviable and likely to collapse. This could cause financial contagion in 2019 in all sectors.
  • Four, the Ministry of Finance has brutally cut allocations of the investments in infrastructure despite the urgent need for such infrastructure. The economy needs about $1 trillion investment in infrastructure to render “Make in India” a reality, but the actual investment in sanctioned projects is valued even less in real terms than the amount invested in the pre-2014 years.
  • Five, the manufacturing sector, especially MSMEs (micro, small and medium enterprises) which provide the bulk of the employment for the skilled and semi-skilled in the labour force, has been growing at abysmally low rates of between 2% and 5%.
  • Six, India’s agricultural products are among the cheapest in the world, and despite a low yield per hectare, we are not able to increase the yield to its potential maximum and at least double the production and export the agricultural products abroad commensurately. Consequently, agriculture, as the sector that is the largest employer of India’s manpower, is grossly under-performing.
  • Seven, when crude oil prices had steeply fallen over the four years since 2014, and despite the dollar value of the rupee till mid-2018 having been steady at around Rs.65 per dollar, nevertheless both exports and imports simultaneously declined over 2014-17.

WAY FORWARD

  • The Union government needs to give an alternative ideological thrust to economic policy rather than try to improve on the failed economic policies of the UPA, as is currently being done. In particular, first, the individual has to be persuaded by the government by incentives — for example, by abolishing the income tax — and not by coercion, such as harsh levies and taxes. Of course, the state should make no promise to the people without specifying the sacrifice required to be made by them to make it happen.
  • Second, India can make rapid economic progress to become a developed country only through a globally competitive economy, which requires assured access to the markets and technological innovations of the U.S. and some of its allies such as Israel. This has concomitant political obligations which must be accepted as essential.
  • To seriously address these priority problems, it is essential to implement a new menu of measures: (a) dramatic incentives for the household expectation and sentiment to save; and (b) lowering the cost of capital via reducing the prime lending interest rates of banks to 9%, by shifting to a fixed exchange rate regime of Rs.50 per dollar for the financial year 2019 and then gradually lowering the exchange rate for subsequent years.

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