Clogged liquidity

In another unprecedented situation for the government of India, it is for the first time in the past seven decades the entire financial system is under threat and nobody seems to be trusting anybody. The private sector is wary of lending, key sectors are going through a period of acute consumption slowdown triggered by the liquidity crisis, there is an overall slowdown due to subdued lending, all of this contributing to a crisis situation. Liquidity is the degree to which an asset or security could be purchased or sold in the market at a price value and is essentially the ease of converting an asset to cash which is often considered the most liquid of all assets. At such a time of crisis, the government ought to take measures to alleviate fears of private players and encourage them to increase investments and enable cash flow in the ailing economy and revive it from the slowdown it has slumped into. In an address to the Hero Mindmine summit, NITI Aayog Vice-Chairman Rajiv Kumar urged the government to take suitable measures even if it meant taking some extraordinary steps. The government does acknowledge NBFCs (non-banking finance company) as a growth driver and has prevented many of them from collapsing with the steps it has taken to address the concerns of this stressed sector. The economic growth has hit a 5-year low of 6.8 per cent in 2018-19 and the stress in the financial sector definitely calls for renewed attention to fundamental policy matters to address the compounding situation. Automakers and dealers point to a number of reasons behind the slowdown which has so far hit the auto industry worst, and added that liquidity crunch among India's NBFCs is one of the biggest factors to have contributed to the slowdown in the sector. Liquidity is essential to enable demand which will drive the economy. An immediate step in redressing has to be elimination of apprehension in the private sector and encourage them to step up investments and ease liquidity to boost consumption.