27 September, 2019
3 Min Read
The credibility of the RBI, the CSO and the NITI AAYOG has taken a beating in recent times due to political interference. Why are the ambitions of economic development practitioners and reformers so often disappointed?
The slowdown in GDP growth rate has been dissected digressed and disowned by analysts, commentators and policymakers. However the diagnosis is far from complete and the growth engine is running out of fuel.
Both the demand and supply side factors have been central in all the analyses but the crucial role of institutions in shaping the outcomes of both the factors in this episode of slowdown has been neglected.
A market centred economic model necessitates creating and sustaining credible institutions that further the efficiency of market mechanism.
The credibility of three such important institutions – the RBI, the Central Statistical Organisation and NITI AAYOG has taken a beating in recent times.
Major Factors Affecting India’s Growth:
Private consumption, which contributes nearly 55-60% to India’s GDP, has been slowing down.
While the reduced income growth of households has reduced urban consumption, drought/near-drought conditions in three of the past five years coupled with the collapse of food prices have taken a heavy toll on rural consumption.
Savings in the household sector – which are used to extend loans for investment -- have gone down from 35% (FY12) to 17.2% (FY18).
Households, including MSMEs, make 23.6% of the total savings in the GDP.
Gross Fixed Capital Formation (GFCF), a metric to gauge investment in the economy, too has declined from 34.3 per cent in 2011 to 28.8 per cent in 2018, government data show. Similarly, in the private sector, it has declined from 26.9% in 2011 to 21.4% in 2018.
NBFC crisis triggered by IL&FS default led to a liquidity crunch in the economy.
RBI’s Annual report highlighted that there are still structural issues in the land, labour, agricultural marketing and the like that need to be addressed.
Erosion in RBI’s autonomy:
The RBI which was clamouring for more autonomy has been systematically brought under the ambit of the central government.A three-pronged strategy resulted in this first the RBI was bypassed on matters relating to currency, secondly, its role as a regulator of the banking sector was questioned when banks flattered and finally, its reserve was siphoned. The net result has been that the RBI has been reduced into an institution which preside over a limited space of monetary policy that is inflation targeting.
It is useful to focus on understanding and reforming the forces that keep bad institutions in place, especially political institutions and the distribution of political power. This requires understanding the complex relationship between political institutions and political equilibrium. The use of high-quality academic information which the present establishment lacks is valuable both to think about these issues and generate better policy advice.
Source: THE HINDU
India is now ranked 38th out of 139 nations in the Logistic Performance Index (LPI) 2023 of the World Bank. From its previous rankings of 44th in 2018 and 54th in 2014, this is a notable improvement. Earlier, the Logistics Ease Across Different States (LEADS) Report 2022 was published by the Ministry of Commerce and Industry. About Logi
Airports discovered more than 63% of this illegal gold. The Department of Revenue Intelligence recently conducted the Golden Dawn Operation across India, seizing 101.7 kg of illegal gold valued at Rs 51 crore. Despite the fact that India receives a legal import of about 800-1,000 tonnes of gold each year, the illicit market is thought to be
Both parties expressed satisfaction with the ongoing bilateral defence cooperation at the 8th India-Thailand Defence Dialogue, which was held in Bangkok, Thailand. Cultural ties and mutual cooperation that have been shaped by thousands of years of lasting historical and cultural ties characterise India and Thailand relations. Highlight
The Kerala government's appeal of the order of the Kerala High Court is rejected by the Supreme Court. The Kerala government's appeal against the Kerala High Court's directive to move Arikomban (Wild Elephant), the "rice tusker" of Munnar, to the Parambikulam tiger reserve was recently dismissed by the Supreme Court.
Global Buddhist Summit In order to improve diplomatic and cultural ties with other nations, the Ministry of Culture recently organised the First Global Buddhist Summit 2023 in collaboration with the International Buddhist Confederation (IBC). About the summit "Responses to Contemporary Challenges: Philosophy to Praxis" is
Copyright© Aspire IAS Academy. All rights reserved. Powered by CLT Technologies & Edu-Publishers Private Limited.