Issues related to Economic growth

[op-ed snap] Thumbs down

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Moody rated India down

Context

Rating agency Moody’s has reacted to the turbulence in the economy. It revised the outlook on its sovereign rating for India from stable to negative.

Moody’s rating

    • Moody’s India rating is a little higher than that of Standard & Poor’s.
    • The outlook revision will compensate for its past optimism in India. 

Signals it gives

    • It warns that if the economy fails to bounce back soon enough, the sovereign rating could go bad. 
    • Impact of slowdown – it impacts the fiscal deficit and borrowings.
    • Tax revenue – tax revenue growth is nowhere near budgeted levels. With the slowdown extending into the third quarter, tax revenues will further undershoot. 
    • What it means for government – the government has been forced to spend more to give a leg up to the economy. More than just pushing expenditure on capital projects, the government gave away corporate tax concessions last month.
    • Missed Fiscal deficit – Even with the boost from the ₹1.76 lakh crore dividend payout from RBI, it appears that the government will miss the fiscal deficit target of 3.3% of GDP. Moody has projected that the deficit will slip to 3.7% of GDP this fiscal. 
    • Only positive – India’s borrowings are almost wholly domestic. External debt to GDP is just 20% but the ratings do have an impact on investor sentiment.

Hope lies ahead

    • Signs of revival – the Moody’s outlook revision comes when there are faint signs of a revival in the economy. It may be another quarter or two before growth picks up. The festive season uptick in sales of automobiles and white goods points to the return of the consumer to the market. 
    • Bank creditincrease in the bank credit offtake reported by the RBI for the second successive fortnight is positive news.

Way ahead

    • The government needs to press the reforms harder.
    • There is every need to debug GST. 
    • There is a need to go big on disinvestment in the remaining four months of this fiscal. The target of ₹1.05 lakh crore has to be met with a wide margin to contain fiscal deficit slippage. 
    • The supportive measures announced in the last two months should be closely monitored for implementation.
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