"Demonetisation And GST Have Led To Cash Crunch, Situation Unprecedented" Niti Aayog VC On Current Financial Crisis
Taking cognisance of the current economic downturn, government’s think tank – Niti Aayog’s Vice Chairman Rajiv Kumar on August 22 said that the government needs to take steps that are “out of the ordinary” to recover.
In an event in the national capital- New Delhi, he described the ongoing bad liquidity situation in the financial sector as “unprecedented in the last 70 years”.
He said, “This is an unprecedented situation for the government. In the last 70 years, we have not faced this sort of liquidity situation where the entire financial sector is in a churn, and nobody is trusting anybody else.”
Kumar said these days nobody is trusting anyone else in the sector as financial institutions are lending money to selected while denying credit to a large number of sectors. He said that instead of helping, everyone is sitting on cash. He said that the government must do something to remove the atmosphere of tension from the private sector.
He said, “I think the government must do whatever it can to take away some of the apprehensions for the private sector.”
He said the private investments will pull India out of the middle-income trap. He said that the government has addressed the crisis in the Union Budget and some steps to push the economic growth which hit a five-year low of 6.8 per cent in 2018-19 have already been taken.
He blamed the indiscriminate lending of banks to various companies during 2009-14 leading to rise in the non-performing assets (NPAs) for the ongoing financial crisis.
He said, “The whole nature of the game has changed after demonetisation, the goods and services tax and the Insolvency and Bankruptcy Code. Earlier, you had 35 per cent cash sloshing around, while it has now become much less. All these put together, it is a fairly complex situation. There is no easy answer.”
Shamika Ravi, a member of the Prime Minister Narendra Modi’s advisory council has also shown worry and mentioned that the government needs to follow a National Growth Strategy with time-bound goals. She on Twitter said that major reforms are the need of the hour.
We are faced with a structural slowdown. Urgently need to follow a #NationalGrowthStrategy with time bound goals for many ministries. Need major reforms, not mere tinkering. Leaving economy to the finance ministry is like leaving the growth of a firm to its accounts department. https://t.co/1S2AcgBLr8
— Shamika Ravi (@ShamikaRavi) August 22, 2019
A few days back Raghuram Rajan, the economist who predicted the 2008 financial crisis in his 2005 paper ‘Has Financial Development Made the World Riskier?‘ has called the present slowdown in the Indian economy ‘very worrisome’. The former RBI governor’s reaction came after the world agencies revised India’s growth rate, RBI slashed the repo rate for the fourth consecutive time, and former Chief Economic Advisor (CEA) Arvind Subramanian revised the GDP number by almost 2.5 percentage points.
The country’s economy slumped sharply after GDP growth slowed down to 5.8 per-cent in the January-march period.