It’s time for India to re-examine its economic

Context: The present pandemic necessitates the need for a new Economic Policy Framework based on the revival of domestic demand.

Flaws in Policy Framework: The blow to demand through demonetisation and the subsequent decline in wages and the rise in unemployment was neglected due to flawed understanding.

• Over-reliance on supply-side interventions.: Government policies have been misguided towards checking supply-side constraints when the real issue lies in reduced consumption demand. 

• In the present crisis, the government have largely focused on the easing supply-side constraints like tax sops, steps to ease credit availability and monetary policy rate reductions 
• Some efforts such as free rations and paltry income transfers are insufficient to boost demand.
• Demand-based programmes like public distribution system and MGNREGA have been vilified as drags on the economy

Argument in favour of New Policy Framework: The existing policy framework has been found inefficient in dealing with the vulnerabilities and structural weaknesses of the economy over the past two decades.

• Not much success on macroeconomic indicator: Despite all the supply-side reforms India has faced recurring agrarian crises and widening inequality, unemployment, and stagnancy in the manufacturing.
• Limited Manoeuvrability:  With fiscal deficit reduction and reliance on monetary easing has constrained expenditure on health, education, and food security as a proportion of national income.
• Crisis led to reform:  The present crisis, like following, provides an opportunity for the government to overhaul its policy framework.

• The food crisis of the 1960s led to self-reliance in agriculture. 
• The fiscal crisis of the late 1980s led to the economic reforms of the 1990s. 

Conclusion: The new framework should be people-centric with a large fiscal outlay to revive domestic demand and sustaining high economic growth.