The present slowdown of the Indian economy is due to deep structural issues and the government lacks rationality in dealing with the real issues facing the economy, C.P. Chandrasekhar, Professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi, has said.
Dr. Chandrasekhar was delivering the 23rd annual lecture on ‘India’s dramatic growth slowdown — A long-term perspective’ organised by the department of economics department of Mar Thoma College in Thiruvalla on Thursday. He said India adopted a strategy in 1950 to revive the domestic demand by investing in capital goods, reviving rural demand by land reforms, breaking the monopoly in land ownership, and reducing inequality. Only a limited role was there for foreign capital and export-led growth.
However, the growth trajectory had been completely changed with the arrival of neo-liberal fiscal reforms. With the passing of the Fiscal Responsibility and Budget Management (FRBM) Act, the government’s overemphasis on the reduction of fiscal deficits led to significant reduction in public spending. Now, the government’s debt financing was reduced and the private sector debt started rising.
Credit boom
Dr. Chandrasekhar said the economic growth since 1990 was largely fuelled by credit boom, retail spending boom and lending to the corporate and infrastructure sectors. Credit as percentage of GDP rose from 22% to 55%, infrastructure lending increased from 3% to 35%. All these led to a form of credit bubble in India, that ultimately resulted in a lending burst, he said.
Starting from a historical perspective, Dr. Chandrasekhar outlined the key policy inputs and factors that defined India.
