Issues related to Economic growth

[op-ed snap] Waiting for reforms: On the economic stimuli

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Structural slowdown - need for reforms

CONTEXT

Finance Minister presented the third round of stimulus measures to resuscitate the struggling economy. Once again these have largely failed to live up to the initial hype around them. 

Previous plans

  • The previous two rounds of the stimulus plan over the last few weeks focused on:
    • reviving the automobile sector
    • boosting the confidence of foreign investors
    • improving the health of state-owned banks

Present round

  • This time, the focus has been on helping out the export and real estate sectors through fiscal reforms. 
  • A new tax refund scheme and greater priority sector lending for the export sector were announced to incentivise exports. 
  • It is expected that the new tax breaks to the export sector will cause a dent of up to ₹50,000 crore to the government’s revenue. 
  • External commercial borrowing norms have been eased to make it easier for Indian real estate companies to tap funds from abroad.
  • Funds worth ₹10,000 crore have also been allocated to aid the completion of affordable housing projects. 

Problems

  • Lack of demand and supply-side bottlenecks are the primary issues facing exports and real estate.
  • The government has been relying almost entirely on providing fiscal relief in the form of tax cuts coupled with a tiny amount of government spending, to tackle the structural crisis. 
  • Without enacting any major supply-side reforms like land and labor reforms, it is hard to see how greater spending can raise growth in the long term. 

CONCLUSION

The government should aim higher by trying to push through long-pending structural reforms that can raise India’s growth trajectory to the next level.

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