How does the economy adjust back to the long run if the government takes no corrective action

Inflationary gap

Asset quality kept on deteriorating because loan restructuring was not done in time. BOX The fiscal outlook could be worse than projected if: the economic recovery is weaker or slower than forecast, automatically increasing spending and depressing revenues; health spending growth is faster than projected; new or expanded spending programs are not fully offset by new revenues or cuts in other programs; annually appropriated spending that is, other than for entitlements grows with GDP rather than only with inflation, as assumed for the next 10 years; new crises—pandemics, wars, major natural disasters; major bankruptcies—demand emergency spending; or interest rates rise more than projected. This is what I felt when in the government. This term refers to the situation in an economy that has a recessionary gap between both the economy's real and long-run real GDP. So, everything is in harmony. There are huge issues there. RBI opened a window saying that they will backstop any losses in the NBFC and the banking sector and that window was never used but brought back the confidence in the system and liquidity started moving again.

It was not down in that sense, right. In the budget, the finance minister had expressed concern about cryptocurrencies. Now, neither of these significantly emanates from a lot of the issues in the budget.

What we need is a proper decision-making process in banks and these decisions have to be well-articulated.

Negative supply shock

It was not a regulatory failure as such. In most cases, these modifications were to take account of likely congressional actions. What we need is a proper decision-making process in banks and these decisions have to be well-articulated. Again, this is not something that is not amenable to policy measures. Even if it comes in the form of brownfield investment, it actually helps more greenfield investment. The bank credit flow is also improving but yes everything is not alright. What will work is whether you can get the private sector to invest because investment-driven growth would be the real growth… I would call it strategy rather than a road map, and there is a lot of strategy in the budget. In the context of India, we also have to realise that the public-sector nature of banks is important to fulfill certain objectives of the government.

A lot of infrastructure investments come as AOPs If you include asset monetisation, disinvestment and privatisation, you can do much better and why not use foreign money available for this?

I would not like to go into the individual case of PNB, but it is the constant endeavour of every regulator to continue to improve its standards and mechanisms.

how does inflation impact full-employment output in the long run

You have the option of sort of relaxing the fiscal deficit and giving stimulus to the economy, which normally gets translated into a higher growth. It has not been possible to find a way out.

How does the economy adjust back to the long run if the government takes no corrective action

The challenge to my mind is to get the private sector investment to come up.

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