Path to High Growth

Context: India’s immediate economic recovery from pandemic induced crisis lies in the policy domain of the government and the Reserve Bank of India (RBI).

Key challenges to the Indian economy:

• Recession: anticipating a contraction of 7.7% of the Gross Domestic Product (GDP).
• Fiscal restraint: Compared to the Budget estimate of 3.5% for 2020-21, at mid-year, the fiscal deficit was running at 115% of the budgeted figure.
• Risk of credit becoming costly: RBI is thinking of reining in the purse strings now that economic recovery seems on the way.
• Declining state of the financial sector: Rising Non-Performing Assets (NPAs) in Public Sector Banks (PSBs) and debilitating state of Non-Banking Financial Companies (NBFCs).
• Impact of the pandemic: has highlighted inadequacies in -
  • The Public Healthcare System
  • Education sector: due to closing down of schools, children being forced to adopt digital learning and disappearance of the mid-day meal programme during the pandemic.

Policy Measures For Sustained Economic Recovery:

• Stimulate consumption at the bottom: This will revive Micro, Small and Medium sector and will restore jobs, reinforce consumer demand and in turn revive supply chain for the corporate sector.
  • Budget must ensure cash benefits for poor and working capital for cash-starved small units.
• Changing the rules of the fiscal deficit: Stop looking at the safe level of fiscal deficit in terms of the Budget and start focusing on public debt as a percentage of GDP.
  • India is much better off at 62% compared to Japan (246%), US (106%) and Germany (89%), in terms of public debt as a percentage of GDP.
• Strengthen the financial sector: Providing a lifeline to NBFCs and recapitalising the PSBs to ensure credit growth until they can be sold off.
• Ensure continuous supply while moderating inflationary pressures: inflation picked up in the first place because the economic standstill severely affected supply.
• Mitigate the impact of the pandemic on public healthcare and education system: state of publicly funded education and healthcare is no better amid pandemic.
  • Lancet has set up a citizens’ commission to chalk out a forward path for Indian healthcare in the next decade.