India’s current economic downturn has become severe enough to raise major concerns both far and near.

As the International Monetary Fund raised doubts about the government’s tax revenue collection projection for 2019-20, two officials close to the Narendra Modi government have expressed their own worries about the state of the economy and called for urgent measures.

The government projected tax revenue to grow 25% year on year. The IMF has asked India to explain how it is confident of meeting those revenue estimates given what has turned into an economic slowdown across the board. India has to respond this week, Business Standard reports.

In 2018-19 tax collection fell short by 1.7 trillion rupees (US$23.7 billion) or 7.5% of the revised estimates for the year. With the economic downturn worsening, tax collection is expected to be further hit.

The IMF last month cut India’s growth forecast by 30 basis points for the current as well as next financial years to 7% and 7.2% respectively as consumption has slowed down.

‘Grim situation’

Closer to home, Rajiv Kumar, vice-chairman of the government think tank Niti Aayog, said that the entire financial system is under threat in a situation more dire than has previously been faced in the country’s 70-year history, Press Trust of India reported.

The government needs to take steps that eliminate apprehension from the minds of private sector players and encourage them to step up investments, Kumar said.

“Nobody is trusting anybody else,” Kumar said at an event in New Delhi. “Within the private sector nobody is ready to lend, everyone is sitting on cash…. You may have to take steps which are extraordinary.”

Kumar blamed indiscriminate lending during 2009-14 for the current crisis. He said it had led to a rise in bad loans after 2014, which reduced the ability of banks to do fresh lending. This space was occupied by the shadow banks with credit growth of 25%, but they too were unable to manage high loan growth and this led to a slowdown and liquidity crunch.

“The whole nature of the game has changed after demonetization of high-value currency notes, the Goods and Services Tax and the Insolvency and Bankruptcy Code. The earlier period where you had 35% cash sloshing around, it has become much less now. All of these put together it is a fairly complex situation. There is no easy answer,” he said.

Shamika Ravi, a member of the Economic Advisory Council to the Prime Minister, has also termed the downturn structural and called for major reforms.

Ina tweet, she said, “We are faced with a structural slowdown. Urgently need to follow a #NationalGrowthStrategy with time bound goals for many ministries. Need major reforms, not mere tinkering. Leaving the economy to the finance ministry is like leaving the growth of a firm to its accounts department.”

This remark has raised many eyebrows on Twitter, with some wondering whether she would lose her job, or if she is tweeting after clearance from the ruling establishment.