Indian economy to face biggest challenge on weak global demand: Finance Ministry

10 Nov 2016 Evaluate

Finance Ministry has said that Indian economy will face biggest challenge in the near term due to weak global demand, whereas in order to increase the credit supply of the state owned bank there is need to resolve the problem of bad loans. It also said that since January last year banks have passed on less than half of the 1.50 percent rate reduction benefit to consumers therefore, the transmission of monetary policy has remained incomplete. It added that exports and imports together constitute 42 percent of the GDP (gross domestic product), even at the reduced levels in 2015-16.

Ministry identified the twin balance sheet problem of stressed financial positions of some large corporates leading to stressed assets of banks which might affect private investment as a critical challenge. The gross non-performing assets (NPAs) of public sector banks (PSBs) increased sharply to 9.8 per cent in March 2016 as compared to 5.4 per cent in March 2015, which is mainly on account of cleaning up of their balance sheets. It also said that the problem of non-performing assets needs to be resolved and bank lending needs to pick up.

According to the Reserve Bank of India (RBI)’s Financial Stability Report, the proportion of leveraged companies declined sharply to 14 percent in March 2016 as compared to 19 percent in March 2015 and their share in the total debt also declined to 20.6 percent from 33.8 percent. The ministry has said that creating quality jobs is the imperative of the time therefore the government has focused its efforts on removing impediments to job creation, including addressing shortage of skills to the workforce. However, it noted that reviving the savings and investment cycle in economy is challenging.

Further, the savings rate that stood at 34.6 per cent in 2011-12, declined to 33 per cent in 2014-15. Investment rate declined to 34.2 per cent in 2014-15 as compared to 39 per cent of GDP in 2011-12 The International Monetary Fund (IMF) has estimated India to grow at 7.6 per cent in 2016-17 and 2017-18, while World Bank has projected India to maintain a robust growth of 7.6 per cent in 2016 and 7.7 per cent in the following two years.

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