One of the most critical short term challenges confronting the Indian economy is lsquo the twi...........

Economic Affairs Balance of Payments

One of the most critical short term challenges confronting the Indian economy is ‘the twin balance sheet’ (TBS) problem. Which of the following statements are true in this regard?

1. TBS implies the Balance of Payments account which comprises current and capital account deficits.

2. It is the impaired financial position of Public sector Banks and some large corporate houses.

3. It is a major impalement to private investment, and thereby fully fledged economic recovery.

Which of the above is/are correct?

1 and 3 Only

2 and 3 Only

1 only

3 only

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Explanation:

The balance sheets of both public sector banks (PSBs) and some corporate houses are in terrible shape and it has been seen as a major obstacle to investment and reviving growth. The problems faced by the Public Sector Banks are linked directly to that of the corporate sector. During the boom years, some companies borrowed a lot of money from banks to invest in infrastructure and commodity- related businesses, such as steel, power, infrastructure etc. But now, due to slump in both these sectors, the corporate profits have hit new lows. With low profits, the corporates are not able to repay their loans and their debts are rising at an alarming level.