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Why is India's Economy Falling? (Shadow banking (Shadow Banking are…
Why is India's Economy Falling?
Was India's Economy ever rising?
During 2006-2016 India's GDP was rising at an exponential rate. It lifted 217 Million people out of poverty (went from 55% to a low of 28%)
Access to Electricity has improved over 70% in 2007 to almost 93% in 2017
Although this year has faced the slowest growth in economic history of India.
Shadow banking
Shadow Banking are financial institutions that serve the same purpose as banks but do not follow the traditional banking rules. The traditional banking system of banks like ICICI Bank and State Bank of India are in regulation with the RBI, also known as the Reserve Bank of India. Whereas Shadow Banks like Citi Bank and Horizon Market Research also provide avenues for people to do the same things they would at traditional banks, but without RBI regulations.
Shadow Banking is a cause of the 2008 meltdown. Even though the 2008 recession didn't majorly harm India due to our parallel economies, however after demonetization it was evident that the 2008 crisis impacted the country more than we thought.
It is one of the primary reasons as to why our country's economy is growing so slowly. During the 2000s, India experienced an economic boom due to state banks giving out loans to infrastructure industries.
Companies couldn't keep up with repayments. State banks didn't get their money back and heavily struggled. Because of this, shadow banks emerged so that businesses could keep themselves afloat. They made almost 1 third of loans nationwide to people with almost no credit.
Due to this, Infrastructure Leasing and Financial Services, a popular shadow bank, relied on debt repayment and in turn ended up going bankrupt and failing. A ripple effect came into play and there was inflation. Many cars were not affordable and the automotive industry, one of India's biggest took a hit.
Demonetization
One of the most disturbing decision made for the India's economy.
Bank key notes were banned
Disrupted our cash flow economy.
Happened in 2016
Our Economy
India follows two parallel economies.
One is the cash flow for small scale businesses.
The other in is banking for large-scale businesses.
Demonetization had the biggest impact on the cash flow economy. This forced people to lodge money into big banks in order to protect their assets.
On the other hand, shadow banking was a major cause of the 2008 recession. Shadow banking attacked the banking system of the country which led to a ripple effect causing the slow growth of India's GDP