One does not need to go too far back in history to recollect
the precarious situation of the Indian economy. When the current government
took over in 2014, the declared fiscal deficit was at 4.5 per cent while the
actual was estimated to be in the range of 5.5 per cent. The gap between these
two figures was because the UPA government incurred off balance-sheet expenses
like oil bonds (issued to the tune of Rs 1,42,202 crore and not reflected in
government accounts), withheld income tax refunds and rolled over, to the next
year, payments which would have ideally come in towards the end of financial
year 2013-14. It was creative accounting at its best. Coupled with weakness on
the external account, India was part of a group that was informally referred to
as the “fragile five” — countries being the weakest links in the global economy.
The Modi government went about managing its financial affairs
in a very prudent manner. Falling global oil prices were leveraged to generate
better revenue for the government. Measures like demonetisation and the Goods
and Services Tax (GST) were launched, establishing audit trail and ownership of
money and simplification in indirect tax structure. Macroeconomic parameters
like inflation and fiscal deficit have been contained, the current account
deficit is manageable and foreign exchange reserves and GDP growth rates are
inching higher. In doing so, the government has not sacrificed any essential
expenditure. As per the publicly available data, the 2014-15 to 2018-19 period
has seen the best combination of GDP growth rate (high) and inflation (low)
than any other government in the history of independent India. Success on the
macro-economic management front has been one of the biggest achievements of the
Modi government and like many other achievements of this government, has been
unduly ignored by the mainstream media. We are not only one of the
fastest-growing economy, but also the sixth-largest economy in the world. PwC’s
annual Global Economy Watch report projects India’s real GDP growth in 2019-20
at 7.6 per cent and accordingly, India is likely to surpass UK in 2019 rankings
of world’s largest economies and occupy the fifth position.
The incumbent government is not chasing macro-economic
parameters; you look for growth in the economy, hand-hold sectors that need
support and do not chase parameters like a certain level of fiscal deficit. At
the centre of all initiatives is the ordinary citizen of India and the goal is
to ameliorate her condition of living. The target is to achieve a higher level
of GDP growth and to make it as wide and participative as possible. In the
roadmap for doing so, macroeconomic parameters are self-imposed road signs.
These numbers are not sacrosanct. There may be times when we can justifiably
ignore these limiting factors. Finance Minister Arun Jaitley has said in
unequivocal terms that the government would consider ground realities while
making its economic policies.
Currently, agriculture and allied sectors are facing some
challenges due to lack of sufficient demand for their output. The Micro, Small
and Medium Enterprises (MSMEs) sector is another segment that is facing
headwinds due to lack of liquidity in the financial system and lack of demand.
Increased demand brings in private investment and if there is resource
constraint with the government, fiscal expansion is the way out.
The economy will grow only when there is sufficient demand.
Government expenditure has increased tremendously in the last five years and
sectors like steel and cement have benefited immensely. However, private
consumption and investment demands need to increase further. For this there is
scope for expansionary fiscal policies, particularly when inflation is low.
Fiscal discipline during the last five years has been one of the best and has
given the government the elbow room to boost expenditure. The government might
consider measures like interest subvention on agricultural loans, direct cash
transfer to farmers based on their landholdings, relaxation in income tax slabs
for the lower-middle and the middle class and injection of liquidity in the
financial sector to boost credit availability. These measures might put some
upward pressure on inflation which might not be such a bad thing. Cash
transfers to farmers are constrained by the lack of updated land records with
the state governments and a way around it must be found. Such a transfer will
boost demand for agricultural and non-agricultural products in the rural areas
and help the agriculture and MSME sectors.
Governments and economies exist for the people and not the
other way round. Accolades from foreign rating agencies and media cannot
compensate for the suffering of the people and our government knows this very
well.
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