Structural fragilities to make economy vulnerable

Structural fragilities
Dr Vikas Singh

The Indian economy has been the envy of the world but is today at risk. It has macro-economic imbalances and structural fragilities, making it susceptible to disruptions, exacerbating imbalances, leading to acute and long-lasting socio-economic implications. Crux Management Services president Dr Vikas Singh tells Y V Phani Raj the vulnerabilities of the economy that makes it fragile.

Reasons for fragility

In spite of maintaining growth in the past, the country has perhaps discouraging socio-economic indicators. In addition to income disparity, gloomy human development index and indifferent health, nearly 25 per cent Indians are deprived and denied, living below the poverty levels and continue to ‘stand and wait’ outside the ‘inclusive’ purview. We have a fragile economy and a deprived society and thus need a robust and holistic policy framework to secure the foundations for stable, inclusive and sustainable development. The pandemic has exposed several fault lines. Our economy is characterised by resource deficit, lower productivity, and exiguous technology adoption, cronyism and several other ills. Myopic approach and indifferent policymaking have caused a depreciating economic ecosystem that has hindered competitiveness.

Centre’s role

The economy depends as much on politics as on economic policies. Apathy and fractiousness in policymaking hurts confidence in the economy. Over the last 70 years, the centralised planning strategy has not addressed the inherent challenge, and benefits of increasing economic integration have not been equitably shared between or within the States.

Sectoral challenges

Farming in India is not sustainable, not because our farmers cannot ‘weather’ the challenges but because the ecosystem is a huge headwind and unsurmountable. Half of our workforce processes and creates less than a seventh of our GDP and earns a fifth of what others do. Investment in rural infrastructure, agricultural ecosystem and equitable land acquisition is paramount to create sustainable and equitable growth. Then there is a case of the 400 million unorganised, unionised and underemployed workforce, which is paid 70 per cent of the minimum wages and receive no benefits. MSMEs on the other hand employ 120 million people, contribute to 45 per cent of the exports and 30 per cent to the GDP. They however lack credit, market and technology.

Missing middle

The corporate sector faces regulatory hurdles and policy upheavals. Businesses don’t like government going back on its promises (retrospective taxation). Cancelling contracts are common when the dispensation changes. In a thriving economy, the corporate sector must partner the stakeholders to build and enhance the ecosystem. The MSMEs lack the required support and in effect do not add value, reducing the efficiencies of the larger corporates, hurting them and subtracting growth. A good proportion of our large companies are debt-laden and precariously leveraged. Under pressure, they impede, triggering a vicious cycle of increasing bad loans, credit ‘trimming’ and choking the economy. Our research shows that 20 per cent of the top 500 companies are unable to service debt and fixed cost even for 60 days in the absence of earning. Even the largest organisations are smaller compared to the global scale.

Public sector

We have a ‘mixed economy’ that most people describe as ‘profit in the private pocket and loss in the public’. Over 90 per cent of the large PSUs are struggling. Most are bailed out regularly. At this rate, most of them will close down, sinking public money.

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