June 2019
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[op-ed snap] Slowdown confirmed: on deepening economic crisis

Mains Paper 3 : Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Economic slowdown is indicating towards the need of change.


CONTEXT

The first macro data set released under the new Finance Minister, Nirmala Sitharaman’s watch, on Friday, showed an under-performing economy with GDP growth falling to 5.8% in the fourth quarter of 2018-19 and pulling down the overall growth for the fiscal to a five-year low of 6.8%.

Background

  • Growth in gross value added (GVA), which is GDP minus taxes and subsidies, fell to 6.6% in 2018-19, pointing to a serious slowdown.
  • If further confirmation were needed, the growth in core sector output — a set of eight major industrial sectors — fell to 2.6% in April, compared to 4.7% in the same month last year.
  • And finally, unemployment data, controversially suppressed by the Union government so far, showed that joblessness was at a 45-year high of 6.1% in 2017-18.
  • These numbers highlight the challenges ahead for Ms. Sitharaman as she sits down to draft the Budget for 2019-20, to be presented on July 5.

The overall slowdown in the economy

  • The economy is beset by a consumption slowdown as reflected in the falling sales of everything from automobiles to consumer durables, even fast-moving consumer goods.
  • Private investment is not taking off, while government spending, which kept the economy afloat during the last NDA government, was cut back in the last quarter of 2018-19 to meet the fiscal deficit target of 3.4%.
  • The good news is that inflation is undershooting the target and oil prices are on the retreat again.
  • But the rural economy remains in distress, as seen by the 2.9% growth in agriculture last fiscal; the sector needs a good monsoon this year to bounce back.
  • Overall economic growth in the first quarter of this fiscal is likely to remain subdued, and any improvement is unlikely until the late second quarter or the early third.

Way Forward

  • In the near term, she has to boost consumption, which means putting more money in the hands of people.
  • That, in turn, means cutting taxes, which is not easy given the commitment to rein in the fiscal deficit.
  • In the medium term, Ms. Sitharaman has to take measures to boost private investment even as she opens up public spending again.
  • These call for major reforms, starting with land acquisition and labour, corporate taxes by reducing exemptions and dropping rates, and nursing banks back to health.
  • On the table will be options such as further recapitalisation of the ailing banks, and consolidation.

Privatisation

  • The question, though, is where the money will come from.
  • With tax revenues likely to be subdued owing to the slowdown, the Centre will have to look at alternative sources such as disinvestment.
  • There may be little choice but to go big on privatisation. A rate cut by the Reserve Bank of India, widely expected this week, would certainly help boost sentiment.

Conclusion

But it is the Budget that will really set the tone for the economy.

Economic Indicators-GDP, FD,etc

[op-ed snap] Realising grand objectives

Mains Paper 3 : Issues relating growth and development, employment |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Issues which need immediate attention for India's safety and growth.


CONTEXT

While the broad directions of India’s foreign relations — with the neighbourhood, Afghanistan, the U.S., China, Indo-Pacific, Russia, and Europe — have been set over the past several years, the main factors inhibiting India’s performance are ultimately domestic in nature. Three stand out.

1. Trade

  • The first is trade.
  • It often surprises people that India’s trade-to-GDP ratio is higher than China’s or the U.S.’s. India’s market, and access to it, remains a valuable lever with other countries.
  • But much of India’s commerce involves raw materials and low value-added goods, and is still insufficiently integrated into global supply chains.
  • With global trade stagnant and the World Trade Organization at a standstill, the only way for India to seize a larger share of exports is through well-negotiated preferential trade agreements.
  • India’s past record in this department has been poor, leaving some sectors exposed to dumping and others unnecessarily cloistered.
  • A smarter trade agenda will not only create jobs and drive reforms at home, it could become a potent strategic tool in international affairs.

2. Defence

  • The second concerns defence.
  • India has the world’s fifth largest defence budget but is also the world’s second largest arms importer.
  • Not only does this compromise national security, it means that India cannot offer an alternative as a defence supplier to countries in its region.
  • Defence indigenisation will require financing for defence capital expenditure; assessments of costs, technology transfer capabilities, and export potential early in the procurement process; and fair competition between the Indian private and public sectors.

3. Overseas Project Implementation

  • The third concerns overseas project implementation.
  • India’s outgoing aid budget has been relatively flat, reflecting a scepticism of grant aid from India’s own experience as a recipient.
  • Instead, it has now started to explore other financing options. Indian overseas credit has increased significantly, with over $24 billion extended primarily to South Asia, Southeast Asia, and Africa.
  • But building on several recent steps will significantly increase the country’s delivery and regional credibility.
  • These include better project planning, more attractive and competitive financing terms, more reliable disbursal of funds, and enhanced coordination and communication with the private sector for implementation.

Conclusion

Many regional policy challenges would be addressed with these three major fixes. None will be easy as they will require tackling vested interests. While the first Modi government made its strategic objectives known and set out a clear direction, key policy interventions in these three areas will now be necessary for India to realise its grander objectives.

Government Budgets