What should Finance Minister Nirmala Sitharaman’s economic priorities be at a time the nation’s GDP has fallen to its lowest in five years, drifting at 5.8 per cent in the fourth quarter of FY 19 and unemployment rates highest in 45 years? One of the major priorities before Sitharaman is to revive sluggish economic growth and get the economy back on track. Two crucial challenges which requires immediate attention is the “agrarian crisis and unemployment”.
According to Subhash Chandra Garg, Secretary, Department of Economic Affairs, the government is now focused on improving the per capita GDP measure to rank countries on their economic growth. Garg said in a recent report that efforts would be in the direction towards better employment as well as business opportunities for companies in and out of India, and added that these measures will be unveiled shortly after the new government takes charge.
The key task before the government is to quickly stimulate demand in the economy and uplift investment sentiment. This should be supplemented by fiscal stimulus. The new government should front-load spending in the current fiscal and come up with a clear fiscal and growth strategy in the full budget of FY 20. The major priorities before the Finance Minister are:
Getting the economy back on track: The estimates for FY19 show that the economy grew at 5.8 per cent in the fourth quarter while overall growth slumped to 6.8 per cent. Lack of consumer demand and savings is hurting growth and investments.
Unemployment and job creation: Unemployment rate in India was highest in FY18 at 6.1 per cent. The highest unemployment rate was witnessed among urban females at 10.8 per cent followed by males in urban India at 7.1 per cent, rural males at 5.8 per cent and 3.8 per cent in rural females. Demonetisation of high valued currency and GST had hit the SME and MSME sectors which account for 90 per cent of the jobs in the economy.
Weakness in exports: Exports haven’t matched the growth of the Indian economy. They stood at 11 per cent of GDP in FY19, down five percentage points from 16 per cent in FY14. The rupee is Asia’s worst performing currency, a demand-killing trade war threatens Indian exports that have been hurt by policy disruptions. Export prospects are weak given the ongoing US-China trade war and it is expected to further escalate as the US tightens regulations on tariffs for India. The US decided to withdraw export incentives being provided to Indian exporters under the Generalised System of Preferences (GSP) programme. The rupee’s level will adversely impact manufacturing as domestic prices of imports will go up.
Agriculture crisis and rural stress: A study by premier research institute CSDS shows that 76 per cent of farmers in the country, if given an option, are ready to take up other jobs and 61 per cent of these farmers would prefer to be employed in cities because of better amenities and prospects. There is a rural economic crisis and it should be foremost priority of the government to address the farmers’ issues. Given the 40-50 per cent dip in their incomes, government should prioritise increasing farm income, development of irrigation facilities and alteration in existing agriculture policies.
Public and private investments: New public sector projects declined in September quarter of FY 19; it fell 37 per cent with all major sectors witnessing a fall. The private sector rate is hovering near a record high at 24 per cent, Power and manufacturing sectors remained the worst affected. There is pressing need to reinvigorate investment cycle.
Banking and finance reforms: Some of major challenges in this sector relate to PSU bank consolidation, liquidity to NBFCs, strengthening the bankruptcy law, and increasing credit to SME, MSME and agriculture sectors.
Apart from these, other key priorities are maintaining fiscal deficit, making changes in the taxation system, reviving the debt-ridden telecom and real estate sectors, investing a larger part of GDP in education and skills, giving a conducive environment for start-ups to operate and investing more in renewable energy. New sectors should be opened up for private investments.
(The writer is a student at LIBA, Chennai.)