 If you look at the slowdown, it has been accompanied by a significant increase in financial fragility. This financial fragility is of two kinds. First, of course, is that starting from 2015, we know that suddenly we started reading in the newspapers and through data released by the Reserve Bank of India that banks in India, in particular the public sector banks, were rapidly accumulating non-performing assets on their books. That is, there was an increasing presence of large defaulted loans on the books of the banks, in particular the public sector banks, so much so that in a very short period of time, by the time we got to March 2019, you're talking about something like 9.5 lakh crores worth of non-performing assets and at its peak, the share of non-performing assets in the advances of the public banking system was something like 12.3 percent. That is, more than 10 percent, more than 12 percent of the advances which had been provided over a period of time had turned bad. Now, this is also of significance because if you remember what Professor Majumdar, Professor Majumdar had put up on the board, this occurred after a long period of time in which we had seen a significant increase in the volume of credit provided by the banking system in India. If you look through the 1990s, the size of lending, the total outstanding loans of the banking system of the scheduled commercial banks relative to the size of the economy was something like in the range of about 20 to 22 percent and by the time we got to the 2010s and 2011s and 2012s, we really reached a situation where the ratio of outstanding advances to GDP, a GDP which had been growing quite fast during the period between 2003 and 2008 with rates of growth of 8 percent plus, that this had risen from the 22 percent range to more than 50 percent where, of course, it has stabilized for different reasons but we saw this huge increase, two and a half times increase in the share of outstanding loans relative to the size of the economy. That is, there had been a huge credit binge as it were and out of that credit which had been provided, we find that something like 12 percent of those loans had turned bad. So that was the first element or first sign of financial fragility which accompanied the slowdown. The second, of course, was that more recently, over the last two years, starting with a sudden declaration by what was the largest non-bank financial company in India, which was a government sponsored entity even though it wasn't publicly owned. It had three banks and subsequently the Life Insurance Corporation and international investors putting money into it. IL and FS, which was the industrial leasing and financial services when it was set up, that this was a body or an institution which had been set up to finance, in particular, infrastructure projects in the country. It was seen as the post-liberalization substitute for the development banking system. In the past, we had institutions like the Industrial Development Bank of India, the IFCI, the Industrial Financial Corporation of India, the ICICI, which is the Industrial Credit and Investment Corporation of India. The government had set up a whole architecture, a development financing architecture to finance capital-intensive projects in general in the private sector, in particular to finance large infrastructural projects as well in which both the public sector and the private sector could have played a role. However, with liberalization, it was decided that these financial institutions, excluding of course the ICICI, which was set up with funding from the World Bank and from the Cooley Funds, which is the United States' holdings of rupee funds in India, that all the others were supported either with resources from the budget or with surpluses from the Central Bank. It's not the first time that surpluses from the Central Bank have been deployed for other purposes. They used to be a long-term industrial financing fund within the Central Bank, a long-term agricultural financing fund within the Central Bank. The Central Bank was seen as being a development instrument as well, and one of its roles was to provide relatively cheaper, low-cost of capital funds to the development finance institutions so that they could fund these activities. But because of the fact that liberalization said that there shouldn't be a segment of the financial sector which gets separate treatment, which doesn't go to the market to mobilize its funds, paying as much as anybody else would pay in order to mobilize resources and get special funds from the Central Bank in the budget, it was decided by the Narcimum Committee report that it was necessary to in some sense level the playing field, and the way in which this was done was essentially by converting or allowing these development financial institutions to set up commercial banks. So IDBI set up IDBI bank, ICICI set up ICICI bank, etc., IFCI didn't, but IFCI went to seed, and essentially you had a reverse merger of the development financial institution into these commercial banks which they had created, and therefore you had commercial banks. You did not have specialized financial institutions to finance capital-intensive projects and infrastructural projects. So therefore you needed an alternative, and the ILNFS was one such institution. There were other non-bank financial institutions, in particular there were a range of non-bank financial institutions which came up to encourage lending to the housing sector, including affordable housing, housing for the middle classes, etc., and one of the biggest of that was the Diwan Housing Financial Limited, DHFL, and what we have, what we find that in the last two years, first the ILNFS, which finally was not just one company, but very large number of companies running to close to 100, which had been created over a period of time at subsidiaries, all of which were going to the market and borrowing, and using those funds to finance infrastructural projects, and this was, as I said, treated as or presented as one of the real innovations of financial liberalization post-1991. We find that both ILNFS and DHFL, the two largest of these non-bank financial institutions, have also begun to default, have began to default, and we find that both of them are essentially turning bankrupt, and this is of significance because of the fact that you might say that 9.5 lakh crores was a lot of bad debt lying in the books of the banking system, but if you look at the amount of credit that these two institutions were going to default on, each of them is going to default on credit, which on borrowings, which they'd undertaken, to the tune of 100,000 crores, about 90,000 to 100,000 crores, 90,000 crores, they say, in the case of V1, 100,000 crores in the case of ILNFS. So you actually have this humongous, this humongous accumulation of bad debt in the system, and the point is that these two elements are related. Why are they related? Because one of the features of liberalization is that, and this is not true just of India, but internationally, one of the features of liberalization is that in as much as you want states or governments to adopt principles of fiscal austerity or fiscal consolidation, as they call it in their euphemistic terms, that you essentially have a situation where activities which the state would indulge in, now even the railways, for example, activities which the state would indulge in, it claimed that it could no more fund. It could no more fund those activities for two reasons. One, it could no more fund those activities because since post-liberalization, the whole idea is that the state should incentivize private investment and facilitate the private sector. The state cannot go in for very heavy taxation. Taxation needs to be lenient. If taxation is lenient, we saw what happens to the tax GDP ratio, post-liberalization, it stagnates and falls, and if you don't have money from there, and you cannot borrow because of the fact that the aspect of fiscal reform is supposed to be that a state which normally is considered an entity which is not like a household, a household if it borrows, must essentially use its incomes in order to meet its debt payment commitment. Whereas if a state borrows, the state first of all spends, when it spends income increases, because income increases, its tax revenue increases, and because its tax revenue increases, it can partly pay that debt. And also the state always has the right to increase taxation, to tax segments which have not been taxed, to touch on surpluses and an increasingly in equalizing growth strategy in order to be able to finance its debt commitment. So it can take on debt. It's not like a household, but the whole idea was in the period of fiscal reform, you cannot do this because of the fact that the whole understanding is that the state should practice fiscal austerity. It should not be a proactive state in terms of undertaking expenditure and entering into the arena of production of goods and services. It must merely serve the role of a facilitator of private investment and private economic activity. So if you have that, obviously what happens, and this is as I said, not something which is true only of India, it's true of generally a neoliberal regime of accumulation or strategy of growth, then it becomes necessary to find ways in which you can push private expenditure. Now the reason why you need to push private expenditure is twofold. The first reason you need to push private expenditure is because state expenditure not only creates capacities, not only sets up dams and roads and railways and so on, state expenditure both because of the consumption of the state or what it buys when it undertakes investment and employs people and two because of the fact that it actually generates incomes which generates demand. State expenditure is a major demand stimulus in capitalist economies, in so-called market economies which is essentially more scientifically called our capitalist economies. Now so you need some replacement for the state to actually provide the demand stimulus because for reasons which I don't want to go in here, it's known that if you actually look at the dynamics of a capitalist system left to itself you will only get cycles, you will not get growth. If you want growth there has to be an exogenous stimulus, it has to be external markets, it could be innovation, it could be state expenditure but basically if you don't have those kinds of things then you end up with a situation, you saw what happened to external markets, India is not like China or South Korea or whatever it is, it's not a great successful player in international markets. It's not an entity in which innovation is going to make a difference because you don't innovate, you just buy or borrow stuff from the international shelf of blueprints and use it to undertake production. So you need some other way in which you can have stimulus and state expenditure used to be a very important stimulus in India but if you give up on that stimulus you must find some other way which means that you must try and push private expenditure as a source of demand. You also need private expenditure because of the fact that growth actually doesn't only consist of demand and private investment. To sustain the private investment there are certain kinds of activities which private investors might be shy to go into like say building roads or building dams or building airports or whatever it may be, these are needed in order to support a growth process and therefore it's necessary to find ways in order to get the private sector to do these things which earlier the state would do. So therefore you needed it both from the supply side to create these capacities, you needed it from the demand side in order to generate this demand. Now how do you get the private sector to do this? Because the private sector would say listen, if I produce textiles or if I produce indulge in the production of cosmetics and so on, these are all short-term investments, margins are high, I can make so-called fast-moving consumption goods and so on. Why should I go and invest in areas which involve longer station lags, lumpy investments, high risks, large own capital to be provided. So the state has to do two kinds of things. One it must try and find a way of ensuring that the minimum rate of profit which the private sector demands is available in those sectors and two it must actually say not only will I try and guarantee you a minimum rate of return but I will also ensure that a large part of the financing required for this is provided to you by the financial sector. So I would engage in financial and engineering as a state rather than spending in incur fiscal spending I would engage in financial engineering in order to create an infrastructure which would provide the way with all to undertake the expenditures which will relax supply side constraints which can then facilitate investment to meet the demands which are then also in some sense financed by this credit which comes out of this financial engineering. So that whole growth in credit which we saw was not was not something which was by accident it was part of a growth strategy which is part of the neoliberal era in which the state gets transformed not that the state recedes it retreats the state actually gets transformed in terms of the kind of role it plays. Now when that happens you end up with a situation where you can be and this is true that after a period of time you can be in a world in which one of two things can happen. First of course it can happen that your promise to be able to ensure the profitability of areas into which you sort of induce the private sector to enter and you told said oh we're going to liberalize civil aviation so you you know we had we had long time back we had Modi luft we had you know all sorts of airlines you know one by one they collapsed in including jet airways and of course Kingfisher in between. So you basically say that okay you wanted the private sector to come saying oh where India you know Indian Airlines is coming completely inefficient loss making etc we want the private sector to come and we want competition but basically if you want investment in those kinds of areas there must be a way in which you can provide for the minimum level of investment. Of course you didn't provide for it so therefore you began to see see bankruptcies but what we realized when the bankruptcies began is that much of the money was not the money of those private investors much of the money was of the banking system which was being used as some kind of an off-budget instrument by the state in order to be able to execute this strategy this post liberalization strategy. Now if you have that kind of a tendency you have to ask us we have to separate out three kinds of fragilities and I'll sort of say that in the implications very briefly. The first kind of fragility of course is where because projects which were financed fail defaults occur. The second kind of fragility is that you actually can have a situation in which there are willful defaults. There's willful defaults in the sense that there are firms I mean there's somebody who decides that you know he's had enough of trying to run his business he wants to take citizenship in same kids in Nevis you know he takes he takes a large amount of credit and the next thing you know the whole family is you know changed their citizenship then Indians no more that country doesn't have extradition you know treaty with India and it's gone. I mean you're trying but you can't really get this money sometimes you don't even have that problem you can go to England and hang around watching cricket and you still still somehow don't seem to be able to bring them back. And the third of course is a situation where you can say that this is because of bad practice in the banking system correct managers you know giving letters of credit and so on when they shouldn't. The whole point is the last of those has been made a big thing because of the fact that you want to hide the first two that really this kind of a liberalization resulted in the fact that one you provided huge monies to projects which you couldn't convert into profitable ventures and two you actually allowed the private sector or segments of the private sector to use this loose credit regime in order to be able to sort of you know increase their wealth position without having to go through the tough business of generating the profits necessary. Now if you have that kind of a scenario what in essence you're saying is that this fragility which we are seeing in the financial system is a fragility which is essentially coming because of the fact that that new liberal accumulation strategy where you use these these institutions as instruments because even if you take ILFS if you take DHFL if you take the non-bank financial institutions where did they get the money from they get the money largely from the banking system banks have a problem you know you walk walk into buy a car and you can get a loan within a few minutes if you're a bank it's difficult to go through that you have procedures but if you're a non-bank financial institutions you may basically ask them for a couple of documents and then you sign off and say okay take the car it's hypothetical to me there is no there are no rules which prevail but who gives the money in the final instance it's the banks which have been giving the money in fact we know that out of the 9650 non-bank financial institutions our companies registered with Reserve Bank of India 30 of those companies are responsible for 80% of the borrowing from the banking system so there are a few which actually get a huge amount of this money and they give out these loans in large measure and what has really happened in their case is not that all these loans went side it's not that everybody borrowed to buy a car or the two wheeler is not repaying it's not that somebody borrowed in order to buy a fridge or something is not repaying it's true defaults are slightly high in the case of of educational loans because people don't get jobs but even in the case of housing default rates are very low but the whole problem is they were borrowing from the banking system lending many borrow from the banking system you lend lend you know you borrow short for a few months so that you're lending for you know long periods three years five years 12 years 15 years therefore you have to keep rolling over this credit when the banks found that their books where where increasingly you know filled with the non-performing assets they held back their lending when they held back their lending these firms ran into a problem where they actually had of course in the case of I LFS there was also large amounts of of malfeasance but essentially it's all part of the inability of this of capitalism to be able to render Indian capitalism to render this kind of a strategy successful if you cannot if you cannot render it successful then obviously at some point of time you cannot continue with that strategy you cannot continue to have the banks lending large amounts when they're sitting on this you know whatever 9.5 lakh crores of bad debt and therefore they pull back on their credit and when they pull back on their credit the sectors which get affected most of the sectors which depend on credit like automobiles for for the demand and lo and behold that automobile sector accounts for such a large part of Indian domestic Indian manufacturing that if the automobile sector goes into a slump Indian industry goes into a big slump so the crisis is really you know there's this whole question is it a structural crisis or a cyclical crisis you know calling something cyclical is very nice because what goes down must come up but if a crisis is structural it's pretty difficult to pull it up and this is a deep structural crisis because it is a crisis of the regime of accumulation in which you tried to use financial institutions and financial instruments I mean in financial mechanisms in order to create the bubble on which growth could ride and that is no more possible which is why this is a deep long-term structural crisis and that's why you see this association between financial fragility and the slowdown and growth thank you