India’s looming financial crisis
(The Hindu, 12/06/24)
The risks of rapid credit growth in India, which is being celebrated as a sign of financial innovation and inclusion, could lead to a looming financial crisis.
Why is rapid credit growth risky?
- It doesn’t create new productive capacity, but inflates domestic prices and makes India less competitive.
- When credit slows down, borrowers struggle to repay existing loans, leading to defaults and economic contraction.
- High household debt burdens are linked to steeper economic crashes.
What are the warning signs of a potential crisis?
- Soaring household debt, especially unsecured loans like credit cards.(In January 2024, Indians owned almost 100 million credit cards, up from 20 million in 2011)
- Increase in “lifestyle” borrowing that doesn’t boost productivity.
- High household debt-service-to-income ratio (12%) due to high interest rates and predominantly short duration loans.
- Overvalued rupee hindering exports.
What’s the potential outcome if this continues?
- A financial crisis could erupt, with cascading loan defaults leading to economic contraction and distress in the financial sector.
- This would cause businesses to scale back or even shut down, further dampening economic activity and job creation.
- The burden would fall disproportionately on the most vulnerable, as those who borrowed heavily would struggle to make ends meet and poverty could increase.
- Inequality would also worsen, as the wealthy are better positioned to weather such storms.
What are possible solutions?
Reduce the size and complexity of the financial sector:
- A more streamlined financial sector would be better equipped to assess creditworthiness and avoid reckless lending.
- This can be achieved through stricter regulations and oversight of financial institutions, especially non-banking financial companies (NBFCs) and fintech startups.
- Mergers and acquisitions can also be encouraged to consolidate the industry and reduce the number of smaller players with riskier lending practices.
Promote lending for productive purposes:
- The government can incentivize banks and NBFCs to channel credit towards sectors that create jobs and boost productivity.
- This could involve tax breaks or subsidies for loans to small and medium businesses (SMBs), infrastructure projects, or industries with high export potential.
- Additionally, the government can invest in improving financial literacy among the population, so that borrowers understand the risks involved and take on debt for productive investments rather than simple consumption.
Can you answer the following question?
India’s recent economic growth has been fueled by a significant increase in credit availability. Critically evaluate this strategy, highlighting the potential risks and suggesting alternative approaches to achieve sustainable growth.
The social sciences, a shelter for the ‘excluded’ student
(The Hindu, 12/06/24)
What is the main issue with access to higher education in India, especially in social sciences?
- Intense competition for limited seats: Premier institutions have multiple rounds of filtering mechanisms resulting in focused elimination
- Financial barriers: In the case of private institutions as fee fixation is not bound by statutory regulations and is often akin to dynamic pricing in other services.
- Limited course options: Availability of courses and institutions gets concentrated in some specific regions (like Urban areas), with other regions having generic courses (with outdated topics and syllabus).
- Poor Teaching Quality: The focus on quantity (enrollment numbers) hasn’t been matched by efforts to improve teaching quality and update course content. This can leave graduates with a weak foundation in core social science theories and methodologies.
- Perception of “Soft Skills”: Social sciences are sometimes seen as offering “softer” skills that are less valuable in the job market compared to technical or vocational fields. This can lead to a lack of interest and lower enrollment in these disciplines.
- Limited Research Opportunities: Funding for research in social sciences is often limited, hindering faculty development and the creation of a strong research environment that attracts students.
Are there changing preferences within social sciences itself?
- BA programmes are turning out to be a generic pool, accommodating a large number of students who are excluded. These degrees act as a “catch-all” for excluded students, not necessarily leading to specific careers.
- However, there’s a growing interest in courses perceived to have better job prospects (e.g., economics) and those focused on policy-making skills. This comes at the expense of other valuable disciplines like anthropology and sociology.
How can India benefit from its young population in the context of social sciences?
To reap the “demographic dividend,” India needs to ensure a well-educated social science workforce. This requires:
- Addressing exclusion in higher education.
- Improving the quality of social science programs.
- Recognizing the value of all social science disciplines, not just those seen as directly leading to jobs.
महाराष्ट्रातील सर्व स्पर्धा परीक्षांसाठी ऑनलाईन क्लास, व्हिडिओ कोर्स, टेस्ट सिरीज, पुस्तके आणि इतर अभ्यास साहित्य खाली दिलेल्या लिंक वर क्लिक करून मिळवा.
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