India facing Great Slowdown: Ex-chief economic adviser

New Delhi, December 18

Advertisement

India is facing a “Great Slowdown” with its economy headed for intensive care unit primarily due to a “second wave” of the twin balance sheet crisis at banks, former chief economic adviser Arvind Subramanian has said.

Subramanian, who was Modi government’s first chief economic adviser but quit in August last year, in new paper co-authored with the former head of the International Monetary Fund’s India office Josh Felman said India is facing a “Four Balance Sheet” challenge — comprising banks, infrastructure, plus NBFCs and real estate companies — and is trapped in an adverse interest growth dynamics.

“Clearly, this is not an ordinary slowdown. It is India’s Great Slowdown, where the economy seems headed for the intensive care unit,” he wrote in a draft working paper of the Harvard University’s Centre for International Development.

Subramanian had flagged the twin balance sheet (TBS) problem — debt accumulated by private corporates becoming non-performing assets of banks — back in December 2014, while he was CEA to the Modi government.

In his new paper, he has made a distinction between the original TBS and “TBS-2”.

TBS-1 was about bank loans made to steel, power, and infrastructure sector companies during the investment boom of 2004-11 turning bad. TBS-2 is largely a post-demonetisation phenomenon, involving non-banking financial companies (NBFCs) and real estate firms. — PTI

‘Four Balance Sheet’ challenge 

• He said the country is facing ‘Four Balance Sheet’ challenge — comprising banks, infrastructure, plus NBFCs and real estate companies — and is trapped in an adverse interest growth dynamics
• Arvind Subramanian had flagged the twin balance sheet problem — debt accumulated by private corporates becoming non-performing assets of banks — back in December 2014, while he was CEA to the Modi government
• India’s GDP growth in the July-September quarter slowed to a six-year low of 4.5%. This was the sixth consecutive quarter when the growth rate had fallen