A guide to Breeding Lilacs

Context – Author has assessed the economic reforms announced in this COVID-19 crisis.

Importance of GDP numbers

• GDP number relates with poverty reduction, employment generation and improvement in socio-economic indicators.

Four sources of growth from national accounting angle 

• 1. Investment 2. Consumption 3. Govt Expenditure 4. Net Exports.
• Export can’t be growth driver in this unkind external environment.
• Multiplier effect of Govt Expenditure will be way higher than tax cut, tax breaks.

Assessment of Govt reforms and Suggestions

• Experience of tweaking with FRBM Act have not been salutary in the past because of limited Govt resources.
• 1991 reforms are more about external sector but this time reforms are focused on factor markets (land, labour, capital) and agriculture. Reforms could be chosen to read as land, labour and liquidity with law providing the base.
• Focus should be on MSMEs and rural sector for longer sustainable recovery.
• Enterprise face procedural hurdles at three level: Entry, Functioning, Exit. MSME problem is at the functioning and working capital level.
• MSME Development Act 2006 needs a revamp and better legal recognition of what constitutes as MSME. There should not be any artificial differentiation between manufacturing and service enterprise.
• Announcement of liquidity infusion in NBFCs, Housing Financial Companies, TDS, TCS, EPFO and power sector. It will have some moral hazard in future.