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.
