Concerns & Solutions of Mr. Jaitley

India has a new government in place and it is about four months old. People are hopeful of the new government they brought to power with an overwhelming majority, not seen in the past sixty years.

However, India has many things to worry about. As expressed by the Finance Minister, Mr. Jaitley, the two most important issues that possibly give him sleepless nights are:

“Jaitley indentified two key concerns of the government regarding the economy. The first was low credit offtake, and the second, tepid performance of the manufacturing sector. He said banks have been inhibited by the doubtful loans (NPAs) on their books, and this had created “defensive banking”.

Times of India, 25th October 2014

However, if we care to look closely, the two issues are related to each other as these are connected to boost GDP of the country.

The solutions proposed by the Finance Minister of India are the following:

a) Interest rate cut to trigger growth (bank credit growth slowed to a thirteen year low)
b) Create an environment of low cost quality manufacturing

Apparently, these appear to be viable solutions aimed at boosting a slowing economy. The idea is simple: set up more manufacturing facilities and the GDP would go up quickly. But a deeper examination of the issues would quickly reveal that the solutions make little or no sense at all. The simple textbook solutions do not address the present reality unless the government specifically wants to go for manufacturing in the defence sector, which is more likely. It certainly appears that the proposed solutions are naive with respect to manufacturing in general. The situation on the ground is far more complex than one would like to accept.

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