what-indias-economy-needs-as-we-reopen-it

Context: As India exit the lockdown, our economic reboot is likely to be a long drawn process.

Need of economic reboot:

  • An abrupt lockdown was perhaps necessary to get the rate of corona infection under control, but there are vast gaps in what the Centre has done to tackle its economic impact.
  • Challenges to economic revival:
    • A sharp decline in the real GDP:  This is significantly lower than the 5% that the Second Advance Estimates suggested at the end of February earlier this year.
      • Nominal GDP plummets: At the time of the 2019-20 Budget presentation, nominal GDP was expected to grow by 12%-12.5%. By the end of it, provisional estimates peg it at just 7.2%.
      • This sharp deceleration in nominal GDP growth, shows the continued weakening of India’s growth momentum even before it was hit by the Covid-19 induced lockdown.
    • Missing Second tier(Manufacturing Sector)
      • 2019: A dismal picture: While the agriculture and allied sectors enjoyed buoyant growth, as the year progressed, manufacturing simply lost its way.
    • Demand has fallen, FD increased:
  • The most disturbing news is that the three components of demand have fallen - consumption demand has slowed, while investments and exports are both in negative territory.
  • The Controller General of Accounts data showed that the Centre’s gross tax revenues fell an unprecedented 3.4% in 2019-20, while fiscal deficit increased to 4.6% of GDP, well above the revised estimate of 3.8%.
  • Staggered unlocking: Delhi’s borders had barricades that simply invalidated the concept of a national capital region involving three states and acted as a spanner in operations needing free movement.
  • A warped economic structure: Another key takeaway from the provisional GDP estimates is the undesirable emerging structure of the Indian economy.

 

Way ahead:

  • The government could also jump-start key infrastructure projects that are stuck on drawing boards or tied up in red tape and release payments to small units that remain blocked.
  • For India to grow and create jobs for the millions that enter its workforce each year, manufacturing growth has to rise. 
  • Together with services, manufacturing growth was supposed to absorb the millions still dependent on agriculture. 
  • The Centre’s interventions to re-awaken a bruised economy could get greater returns in agriculture. A big slump in overall demand should not let farmers down.

Source: https://www.livemint.com/