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The Financial Year 2018-19, which recently ended, proved to be the most challenging year for the financial world.

The first and foremost challenge was the introduction of the Financial Regulatory and Deposit Insurance Bill (FRDI Bill) which sought to form a Resolution Corporation that would ‘resolve’ any financial institution through means of a merger, amalgamation, liquidation (by order of NCLT) and bail-in and creation of bridge service provider. Thanks to trade unions, voluntary organisations and outroar on social media, the government was compelled to backtrack.

During the year, the government permitted the Life Insurance Corporation (LIC), whose sole shareholder is the government of India, to acquire IDBI Bank, in which the government had a majority stake. The government argued that the change in ownership of IDBI bank won’t undergo any change in the character of the bank that it would continue to function as a Public Sector Bank. However, the Reserve Bank of India has recently classified IDBI as a Private Sector Bank. This development has taken place when the Lok Sabha is dissolved and the 17th Lok Sabha is yet to be constituted. Nationalisation or de-nationalisation is a critical decision, which normally the Parliament is supposed to take but here it appears that bureaucracy has hurriedly taken the decision. Since the basic character of IDBI bank has undergone change, it will have its natural impact on the policy prescription. If this can happen in case of IDBI then why not in case of other Public Sector Banks? This decision has opened pandora’s box, more particularly when private sector banks such as ICICI, Kotak, and Yes Bank are going through rough weather.

This year has also witnessed debacle of the Infrastructure Leasing & Financial Services Limited (IL&FS), a systemically important Non-Banking Financial Company (NBFC) from the private sector. The initial reaction of the government was not to intervene but upon realising the far-reaching impact on the stock market due to the huge exposure of NBFCs and Mutual Funds in the group companies of IL&FS, the government intervened by replacing the Board of Directors of IL&FS on the lines of Satyam. The LIC and State Bank of India rescued IL&FS by infusing huge funds.

Recently, the SBI rescued private airlines Jet Airways that was running in huge losses. Had it been credit exposure, it was routine for a bank like SBI. However, in this case, SBI converted its equity to over 51% shares. Thus once again it is public sector which has rescued the private sector.

It is amazing to witness that the government, which claims to be a champion of the private sector and liberalisation had to go back to pre-reform policies of socialisation of losses and privatisation of profits. Simultaneously, the government is in the process of implementation of the ambitious plan of disinvestment.

Thus it is evident that even after 27 years of implementation of the new economic policy,  structural reforms, and liberalisation, privatisation and globalisation, Indian economy is passing through the same crisis that was in the year 1991-92. The only thing different is the absence of adverse foreign exchange reserves.

Today, the Indian economy is struggling due to the low growth rate, job creation, severe economic disparity. The manufacturing sector is in deep crisis, likewise, the service sector and tertiary sector continues to be in crisis, which struck after demonetisation. Finance continues to be in deep crisis, mainly due to the non-performing assets in the corporate sector. The agriculture sector is witnessing unprecedented crisis resulting in large-scale farmers suicides in various parts of the country.

Governments initiatives such as Jan–Dhan, direct transfer of subsidies through the bank account, MUDRA, Stand up India, Make in India, Pradhan Mantri Awas Yojna etc. had very little impact on the real economy. All these initiatives have failed in reviving the economy. Severe economic disparities and unemployment are two issues, which may lead to pose catastrophe for the new government.

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