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Decoding India’s GDP contraction



In 2020-21, India’s Gross Domestic Product (GDP) shrank by 7.3 %. India grew at a rate of roughly 7% per year between the early 1990s and the outbreak of the epidemic. 

There are two ways to look at this as an outlier: one is to wish it away, and the other is to consider it in the context of the last decade.

According to CNN’s Ravi Agrawal, India’s economy has been slowly deteriorating under the current leadership, even before the COVID-19 outbreak. 

So, how has the Indian economy fared during the current government’s seven years in power? The so-called “fundamentals of the economy” are a bunch of economy-wide variables. They provide the most robust measure of an economy’s health. Let’s look at the most important ones.

Gross Domestic Product

For the past five years, India’s GDP growth rate has been a source of increasing concern. Following a period of contraction following the Global Financial Crisis, the Indian economy began to rebound in March 2013. Since the third quarter of 2016-17 (October to December), the rebound has transitioned into a secular slowing of growth. 

Many experts believe that the government’s decision to demonetise 86% of India’s currency overnight on November 8, 2016, was the catalyst that sent India’s growth into a downward spiral. The GDP growth rate steadily declined from over 8% in FY17 to under 4% as the ripples of demonetisation and a poorly conceived and hastily implemented Goods and Services Tax (GST) spread through an economy already struggling with large bad loans in the banking system. 

GDP per capita

At a level of Rs 99,700, India’s GDP per capita is now what it used to be in 2016-17. As a result, India has been losing out to other countries. Bangladesh has overtaken India in per-capita-GDP terms.

Unemployment rate

In India, the total number of employed persons declined by 9 million between 2012 and 2018. In the years preceding up to Covid-19, India began to see unemployment rates close to 6% -7 % regularly, compared to the average of 2% -3 %. With dismal economic forecasts, unemployment is expected to be the government’s major concern for the rest of its term. The labour force participation rate, which measures how many people look for work, has been declining.

Inflation rate

Oil prices plummeted from a high of $85 in 2015 to a low of around (or around) $50 in 2017 and 2018. However, India has been experiencing continuously high retail inflation since the fourth quarter of 2019. Even demand destruction caused by Covid-19-induced lockdowns in 2020 could not stop the inflationary spiral. In its forthcoming credit policy review on June 4, the RBI is expected to avoid reducing interest rates (despite slowing growth). 

Fiscal deficit

The fiscal deficit is essentially a measure of the government’s financial health. It keeps track of how much money a government needs to borrow from the market to fulfil its obligations. On paper, India’s fiscal deficit levels were just a touch higher than the established guidelines, but it was an open fact that the fiscal deficit was significantly higher than what the government publicly claimed even before Covid-19. The government conceded that it had been underreporting the fiscal deficit by almost 2% of India’s GDP.


Cryptocurrency: increasingly the currency of choice for new India




Cryptocurrencies took the world by storm when they first emerged in 2009. With no government backing these digital currencies, and no single user having complete authority over them, Crypto has seen a decent rise in the number of its owners. From Elon Musk to Bill Gates, all have spoken about the ‘future’ of currency.  

Recently, BrokerChoose, a broker discovery and comparison website stated in its annual proliferation index that India has the biggest number of cryptocurrency users in the world, with 10.07 crore users. The United States is next, with 2.74 million crypto owners, followed by Russia (1.74 million), and Nigeria (1.30 million).  

The increasing trade volumes and valuations of Crypto exchanges in India is another testimonial to the exponential rise of this virtual currency in the country. The report by Mint states that the Crypto exchange platform CoinSwitch Kuber has 11 million users, whereas WazirX stands at 8.3 million. Within one year of its incorporation in June 2020, CoinSwitch Kuber entered the unicorn club with a valuation of $1.9 billion. Prior to this, just two months earlier, crypto exchange platform CoinDCX became the first crypto unicorn in India with a valuation of $1.1 billion.  

Despite the country’s uncertain future, the cryptocurrency fever continues to grow among the public. The Reserve Bank of India banned cryptocurrency trading in 2018, but the prohibition was eventually overturned by the Supreme Court. In February of this year, the Indian government proposed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which would prohibit the use of private cryptocurrencies in the country. However, the bill has yet to be introduced in Parliament. 

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India’s looming Non-Performing Assets problem




A Non-Performing Asset,  or an NPA, is a loan for which the payment of interest is overdue for over 90 days. All banks around India are obligated to classify these NPAs into Substandard Assets, Doubtful Assets, and Loss Assets.

A Substandard Asset is due for a period less than or equal to a year. A doubtful Asset is in the substandard region for 12 months and a Loss Asset is one which is uncollectable and is of low value.

There are various reasons for the rise of NPAs. Some include the slowdown in the global economy and the irrational lending of banks to business houses. India as a whole has seen a major problem in this field over the recent period

The NPA problem in India

The financial stability of India’s public banks has seen a major downfall since 2011. Gross NPAs had risen to a total of 9.5% in 2015-16. Most of the loans were given out during the peak period of 2004-2008. The banks continued to be inspired by this peak period and continued to irrationally loan out money to various business houses around the country. 

As a global crisis grew, the damage was too much, the projects were unviable, and losses began to surface. The biggest problem faced by the Indian banking system is the fact that the borrower lacks incentives to repay these loans. The business houses are not obliged to make sacrifices either if they decide to default. This led to a huge NPA problem in the Indian Public sector banks

How can India overcome the NPA issue?

India’s NPA problem is on a  rise, and steps must be taken as quickly as possible to resolve these issues to let the banks focus on lending. A new bankruptcy code can play a huge part in helping this system but it will take a lot of time to bring it into full effect.

The second RBI scheme is the Scheme for Sustainable Structuring of Stressed Assets (S4A), under which the bank can offer existing management an opportunity to rehabilitate the project by dividing the debt into two parts. 

The Indian Public Bank sectors need to work on this looming NPA problem. The quicker this is done, the easier it will be for all banks to resume the process of lending money to the business houses which will inevitably help improve the economic condition of the Indian business market

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CoinSwitch Kuber: The story of India’s largest crypto exchange



The growth of Cryptocurrency over the years has been astronomical. People are now tempted to take their first steps into the world of crypto. To make trading, investing, and knowledge of crypto easier for people, three engineers, Ashish Singhal (CEO), Govind Soni (CTO), and Vimal Sagar (COO) launched ‘CoinSwitch Kuber’ in 2017. This began the journey of a platform that is now home to over 11 million users.

In early 2018, the Reserve Bank of India (RBI) issued a policy that did not allow the banks to support crypto transactions that forced the three founders to spread their idea outside India with the VC, Sequoia Capital funding them in the seed round. But soon in early 2020, their dream of shedding light on the digital currency in India came true as the Supreme Court of India overturned RBI’s policy. ‘CoinSwitch Kuber’ was then introduced to the people of India.

Ashish defines simplified User Experience (UX) and the decision to not provide the users with some trading features as the two factors that helped the platform overtake other coin exchanges.

CoinSwitch recently suspended crypto withdrawals for its users due to lack of clear rules concerning the currency. Clarifying the move, Ashish says, “This was perhaps the hardest call we had to take. But regulators are worried about crypto being used as legal tender and hurting the sovereignty of the Indian rupee. Further, they are worried crypto can be used for money laundering and other illicit activities. So far, no one has figured out how to stop it, but disabling crypto withdrawals in a stopgap measure till the right policies come in place.”

Talking about the future, the founders aim to transform this app into a full-time investment platform with crypto and traditional financial instruments available for everyone. Praising the investors such as a16z, the founders hope that the Indian government defines the rules around crypto better, and compartmentalize virtual currencies based on their use cases and not prohibit it in upcoming legislation.

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