5/26/2019 Finance ministry: Near-term worries for finance ministry: Credit woes, slowing demand - The Economic Times

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Near-term worries for finance ministry: Credit woes, slowing

demand
BY ET CONTRIBUTORS | MAY 24, 2019, 08.40 AM IST Post a Comment

BY RAHUL BAJORIA

The feat of winning consecutive majorities by a single party has not been achieved in India
since the seminal elections of 1984. The government would also not be mistaken in
interpreting the results as a strong referendum on the macro stability India has been able
to achieve in the last five years. Indeed, low inflation, manageable twin deficits and
reasonable growth have played a role in the government’s re-election. The fixed income
and equity markets have reacted positively, signaling their approval for policy continuity.

While there may be potential changes in the Cabinet, we do not believe the economic
team and management will change materially in its second avatar.
The govt should move decisively to nip financial
sector issues in the bud, ensuring that growth
The near term headwinds, however, are daunting. improvement incentives are clear and flowing.

Q1 GDP figures next week will confirm that growth in India is in the midst of a cyclical Big Change:
slowdown. The government faces a three-pronged slowdown. There has been a The end of Five-Year Plans: All you need to know

simultaneous stalling in consumption, persisting credit issues in the banking and NBFC
sectors, and an uncertain global backdrop. This trifecta of problems will pose a strong near term challenge, which the government will
need to navigate adroitly through both communication and actions.

We think the Ministry of Finance will quickly need to consider reasserting commitment to maintain stability in India’s financial system,
especially banks and the NBFCs, while working to strengthen regulation.

In recent quarters, the Reserve Bank of India (RBI) has been pro-active, and a high degree of coordination — deploying fiscal and
monetary support to prop up near-term growth prospects — would be ideal.

Over the medium term, the government should move decisively to nip financial sector issues in the bud, ensuring that growth
improvement incentives are clear and flowing. Simplification of GST, a focus on resolution and providing more opportunities for foreign
participation in our capital markets will be greatly beneficial for the economy.

Further, the trade war escalation between the United States and China provides a unique opportunity for India to increase its
manufacturing footprint, and a targeted effort to attract exportfocused manufacturing and building surplus capacity can provide for both
foreign direct investment (FDI) and increased investment in the economy.

Further, the Chief Economic Advisor has recently spoken about land and labour reforms, which if implemented will further improve
India’s potential growth. The government has been able to deliver 4% inflation, and 7.5% growth in its last five years, while consolidating
its fiscal deficit and building external resilience. If the government pursues the promised reforms in agriculture, manufacturing, and the
financial sector, India can expect its factor productivity growth of labour and capital to be further unlocked, and the country can be set on
a path of sustained growth above 8% for the next five years.

(Rahul bajoria is Regional Economist, Barclays)

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5/26/2019 Finance ministry: Near-term worries for finance ministry: Credit woes, slowing demand - The Economic Times

https://economictimes.indiatimes.com/news/economy/policy/near-term-worries-for-finance-ministry-credit-woes-slowing-demand/printarticle/69474087.… 2/2