Economy: Challenges New Govt Must Wrestle
The 'Maha-Kumbh' of the world's largest democracy has just ended and the incumbent government will now hand-over the baton to the new torchbearer of the nation. The UPA government's corrupt rule for ten years has had a negative impact on the economy due to which the country is facing the issues of policy paralysis in general and declining growth in particular. Indians are now looking for a change and are desperately waiting for the turnaround, but there are some key economic challenges, the new government in Delhi will have to face and address, when they come to power.
The issues are
1. Growth rate- After growing at the rate of 10% we have slipped to 5% in the current fiscal and the projections made by international rating agencies have also not been encouraging. But, if we aspire to become an economic superpower it’ll be mandatory for us to grow at minimum 10% for almost one decade.
Accelerating growth rate will be a crucial task for the new government as it is largely driven by the economic policies. For the uphill task, the new finance minister will have to regain investor's confidence before new policies are introduced and implemented.
Red-tapism in bureaucracy; lack of clarity over the government policy and the never ending litigations (even on account of retrospective amendment in the law etc.) has shaken investor's confidence and has dented country's image. As per the IMF report, certain infrastructural sectors like power, transportation etc. will need to be focused upon, as according to them, every rupee spent on infrastructure will give back six times more to the economy. In view of this, the government will have to act pragmatically and work towards restoring investors’ confidence to achieve sustainable economic growth in the coming years.
2. Fiscal discipline- Despite of all the efforts made by P Chidambaram, fiscal deficit is still as high as 4.9% of the GDP. A two way effort will be required to streamline the fiscal laws.
There is lack of clarity over the fiscal policies of the government and the draft legislations on the direct tax & indirect tax (Viz. Direct tax Code for Income Tax and Goods & Service tax (GST) for indirect taxes). Although implementing GST would not be a simple task as it would require consensus from all the states, but because it is the need of the hour, it is necessary to simplify the taxation system to build clarity. Similarly, it is also necessary to replace existing Income tax laws which have gone through numerous amendments by the Direct Tax Code to ensure clarity about the taxation principles.
3. Fiscal prudence and freebies- Politics of populism may be a compulsion for governments but it is not good for the economic health of the country. Because politicians have been using crass politics during elections to garner votes, various schemes launched by the government have failed to yield the desired result and has not reached the target beneficiary of the schemes. As a consequence money is being pocketed by the middlemen at the cost of government exchequer and the government needs to take a tough decision to secure a better future for India.
4. Generating employment opportunities- India has considerable youth population but these young hands need jobs. To utilize the demographic dividend, it is necessary to provide employment to the youth of the
country, to keep the social evils at bay. This objective can be achieved if our economy starts growing at a faster rate and if our manufacturing sector improves. However, it will be good if the government also revisit our inflexible labour laws which were made years ago and support the “Union-Raj” culture of the communists lobby.
5. Inflation- Domestic saving is necessary for capital formation and Inflation negatively impacts the saving potential of the country. If prices rise continuously then, the people are required to spend more which affects saving and reduce the flow of money which is channelised back in the economy as capital. It is therefore important that the monetary policies decided by RBI should result in price stability.
6. Agriculture and other neglected areas vis-a-vis inclusive growth- Despite large scale urbanisation over the last few years, approximately 70% of the Indian population still lives in villages and is dependent on agriculture for their livelihood. While the agriculture sector provides maximum employment, the growth rate in this area is declining and there is a need to use modern technology to boost this sector. For this, large scale irrigation infrastructure needs to be created to reduce over dependency on monsoons.
Revival of agriculture sector and small scale industries will not only ensure inclusive growth but will also reduce pressure on big cities to accommodate migrated population. –Shshank Saurav