The Twin Balance Problem With Indian Characteristics

Twin balance sheet problem

The Economic Survey of 2016-17 has devoted an entire chapter to the Twin Balance Sheet (TBS) problem.

The balance sheets of both Public Sector Banks and corporates in India are in terrible shape.

The Non-performing Assets (NPAs) of the Public Sector banks have increased to alarming levels. Currently, the NPA ratio stands at 9.1 % of gross loans. This NPA problem in the public sector banks has been linked to the rising indebtedness in the corporate sector. This is the twin balance sheet problem.

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Economies (Politics) of Scale

Yogi Adityanath

The most populous state of the largest democracy just witnessed the election phenomenon like never before. Collaborations and allegations surfaced among many other things. It would not be wrong to say that divided minorities in Uttar Pradesh came together and made a clear yet intelligent choice of bringing the Bhartiya Janata Party to power.

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Why Demonetisation not affect GDP?

Demonetisation

It was expected that demonetisation would have an adverse impact on the GDP of the country.  This is because demonetisation abruptly pulled out 86 % of the currency in circulation from the economy and caused major disruption, especially in the informal sector which is predominantly cash based and account for 45 % of GDP.

(For a basic understanding on demonetisation, you could read the following articles:

  1. Demonetisation of currency in India: Explained
  2. The Impact of Demonetisation
  3. Should India make a transition to the cashless economy?)

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India’s Demographic Dividend

Demographic Dividend India

Image credits: demographicdividend.org

Introduction to Demographic Dividend

The demographic dividend is the benefit that can be reaped by an economy when the proportion of the working-age population (15 years to 64 years) is higher than the proportion of dependents (below 15 and above 64) in the economy.

If an economy has the above population age structure, more people are in the labour force and have the opportunity to contribute to the development of the economy. This could lead to a rise in per-capita income.

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The Impact of Demonetisation

Demonetisation

The Indian Government has discontinued the use of old Rs 500 and Rs. 1000 notes. This decision had become effective from the midnight of 8th November 2016.

The Demonetisation scheme was introduced mainly to unearth black money. 

Black money is a huge concern in India. As per a study by Ambit capital research, black money in India accounts for 25-30 % of GDP amounting to Rs. 30-50 lakh crores, which is larger than real economy of many nations like Argentina and Thailand. (1).

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