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Economic Recovery

Economic Recovery

UPSC CSE – SYLLABUS: GENERAL STUDIES-3–  Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Economic Recovery

Factors that will determine the recovery path for firms:

  • Leverage, cost structure, governance, access to capital and adaptiveness determine the virtuosity of a firm.
  • Firms with less leverage, good governance, and the ability to raise capital, cut costs, and innovate to adapt in the current situation will not only survive but also prosper.
  • Economic recovery will be a function of top-down factors like fiscal and monetary stimulus as well as bottom-up entrepreneurial efforts.

Policy needed on:

  • The monetary policy is accommodative but credit transmission needs to improve further.
  • Policy rates are at lifetime low levels but the cost of borrowing needs to be lowered for below-AA rated borrowers.
  • Fiscal stimulus has supported growth at the bottom of the pyramid but sectors like travel, tourism, hotel, retailing, aviation, infrastructure etc require more support.
  • The path of fiscal prudence is important but it needs to be achieved by raising non-tax resources like proceeds from strategic divestment and monetisation of assets, unlocking capital stuck in gold lying in tijori etc.
  • Ease of doing business has improved but rule of law needs to be improved.
  • Despite good intentions, commercial disputes are getting addressed like the never-ending trial of the 1992 security scam rather than the quick, everyone-wins solution of Satyam.
  • Our laws are being made for the lowest common denominator as crooks escape without adequate punishment.
  • This increases the cost of compliance for the rest.
  • Investment cannot pick up sustainably unless rule of law is experienced by investors.
  • Big has become bigger in these challenging times, but eventually small and medium firms need to become competitive and prosper.

Stock market recovery:

  • The stock market has responded enthusiastically with large cap indices trading a little below their pre-Covid highs.
  • Flows and improving fundamentals have pulled the market to current levels. Undoubtedly, we are not out of the woods.
  • Factors like the ongoing second wave in the US and Europe, the US election results etc will impact our markets, albeit on a temporary basis.

Market – way forward:

  • The stock market will be driven by the long-term growth trajectory.
  • Global capital in an era of abundant liquidity and ultra-low interest rates will chase returns (US junk bonds are trading at life-time low yields).
  • For many investors, growth or Innovation will be a proxy for returns.

Source: ”Indian Express”.


Determine the factors that will help Indian in its economic recovery process. Also analyse the problems in it.