Whatsapp 93125-11015 For Details

Important Editorial Summary for UPSC Exam

16May
2024

Next government’s things to-do (GS Paper 3, Economy)

Next government’s things to-do (GS Paper 3, Economy)

Introduction

  • The Indian economy has done well in growing by above 7 per cent for three successive years while other major countries have struggled to stay afloat.
  • However, if one looks closer, the picture is not that straightforward.
  • Compared to pre-Covid years, India has added less value to its GDP.
  • Here are some key points on which the next government should think of working.

 

Five areas that need to be focused on

1. Reviving private investment.

  • Government capex has driven infrastructure growth, especially in roads and railways.
  • This has spurred growth in sectors such as steel, cement, machinery, and chemicals.
  • Private sector investment is crucial for further growth.
  • Investment decisions in the private sector rely on return on capital, which requires strong demand.
  • The PLI scheme has shown limited success, mostly in mobile phones, solar panels, and partially in electric vehicles.
  • Suggestions for improvement include expanding the PLI scheme to SMEs and providing incentives like investment allowances.

 

2. Increasing Household Consumption:

  • Household consumption has been volatile, with a surge during the pandemic for services and some manufactured goods.
  • Hospitality and tourism sectors performed well, but consumer goods demand remained weak.
  • Surplus capacity and high inflation have muted investments and compressed demand in the consumer goods sector.
  • Rural demand has been weak due to poor farm output from a sub-normal monsoon.
  • Reconsider tax rates to increase disposable income.
  • Lower direct tax rates and rationalize GST slabs.
  • Address the decline in household savings by reviewing existing tax structures.
  • Reconsider the old tax scheme and provide further avenues for savings.

 

3. Employment generation

  • It is not directly under the control of the government.
  • It revolves around the private sector, though, on the government’s part, it can full up all the vacant positions, providing a small push to job creation.
  • But, only with consumption taking off, will investments rise, creating the required employment opportunities.

 

4. Focus on farms

  • Revisit and discuss the controversial farm laws with various stakeholders to reach an acceptable solution.
  • Consider government participation in farming through state cooperatives to manage price increases due to crop failures.
  • Clearly articulate the government's stance on agricultural trade to provide certainty for farmers.
  • Establish standardized procedures for procurement and distribution to avoid reactive measures.
  • Revoke the ban on futures trading in products like oilseeds, pulses, and cereals to enhance productivity through robust price discovery.

 

5. Integrate into Global Supply Chains

  • This would mean entering into more free trade agreements with large trading partners.
  • In the last five years or so, there has been significant acceleration in services exports with the IT sector taking the lead.
  • But the same has not been the case in merchandise exports. This needs to change.

 

Conclusion

  • It is also expected that the government will work aggressively on lowering the fiscal deficit over the next few years.
  • While the target of 4.5 per cent of GDP will most probably be achieved by 2025-26, the important thing is to move towards the 3 per cent mark.
  • This will require deft balancing by the next government.