Path to High Growth

The Tribune     14th January 2021     Save    
QEP Pocket Notes

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.
QEP Pocket Notes