Rollback Time

Context: Long discarded policies like deficit monetisation, loan restructuring, higher tariffs and import licensing had not yielded great results even the first time around.

Macro-economic Structural and Policy Challenges to the Economy

• High Inflation: Restricting the monetary policy manoeuvring by the Reserve Bank of India (RBI) because the policy rates are already negative in real (inflation-adjusted) terms.  

• Threatened Savings and Investments: 

• Due to low Gross Domestic Production (GDP): Resources available for the rest of the economy are constrained as GDP is expected to shrink by 5%. 
• Falling corporate profits (shrink by 30%) and jobless households: have impacted the savings in the economy.
• Rising Fiscal Deficit: The deficit could end up exceeding 6.4% of the GDP, which was the high watermark set in 2010.

• Rising Unexpected Expenditure: Expenditure in the June quarter was 5.4 times the revenue.
• Declining Government Revenues: which are down by half in the June quarter.
• Rising External Borrowings: Government increased the borrowings requirement by 50% to Rs12 trillion
• Banking Issues: Rising bad debt could demand additional capital need to settle the potential bad loans.
• Twin Balance Sheet Problem: has forced the RBI to delay the insolvency through the discarded practice of loan restructuring.

• Policy Issues: 

• Governmental Steps Taken: to ease labour policy, attracting foreign investments in new sectors (like coal, mining), encourage import substitution and improved transport infrastructure.
• Policy Rollback: Discarded policies have been employed having no outcomes in the first round of implementation:

• Higher Tariffs and import-licensing.
• Loan Restructuring.
• Plan for deficit monetization through the printing of money.

Conclusion: The discarded policies now revived did not yield great results in the first time around.