NEW DELHI, Dec. 18 (Xinhua) -- Former Chief Economic Adviser to Government of India Arvind Subramanian has said that the country's economy was facing a "great slowdown" and was headed for "intensive care unit (ICU)" primarily due to a second wave of the "twin balance sheet crisis" at the public sector banks.
Subramanian, who was the chief economic adviser from 2014 to 2018 in Prime Minister Narendra Modi's first government, has written in a new paper co-authored with the former head of the International Monetary Fund's (IMF)-India Office Josh Felman.
In the paper he mentioned that India was facing a "Four Balance Sheet" challenge comprising banks, infrastructure, plus Non-Banking Financial Companies (NBFCs) and real estate companies, and was trapped in an "adverse interest growth dynamic."
"Clearly, this is not an ordinary slowdown. It is India's Great Slowdown, where the economy seems headed for the intensive care unit," he wrote in the draft working paper of the Harvard University's Centre for International Development.
"Indeed, the economy seems locked in a downward spiral," said the former chief economic adviser.
"Best capturing this stark reality is the astonishingly high interest-growth differential. The corporate cost of borrowing now exceeds the Gross Domestic Product (GDP) growth rate by more than 4 percentage points, meaning that interest on the debt is accumulating far faster than the revenues that companies are generating," he said.
This, he said, had caused "a resurgence in the amount of stressed debt, a second wave of the Balance Sheet Crisis."
Indian economy has been facing tough times for almost a year, with key organizations like the World Bank and the IMF cutting down its growth forecasts to around 6 percent in the current financial year.
On Tuesday, IMF's chief economist Gita Gopinath said IMF was all set to cut the growth estimate for India "significantly" in January. Gita also sounded doubtful about the country achieving the 5-trillion-U.S.-dollar GDP target by 2025, an ambitious target set by the government.
India's GDP growth for the September quarter fell to 4.5 percent, down from 5.0 percent in the previous quarter and 7 percent for the corresponding period of 2018 as consumer spending and private investment weakened further and a global slowdown impacted exports growth.
This was the lowest reading since 4.3 percent recorded for the January-March quarter of 2013.