THE CURRENT POLICY PRIORITIES FOR THE INDIAN ECONOMY

As the world races to find a cure for the pandemic, which has now engulfed almost the entirety of 2020 and the world, another crisis has sprung up in action only as a consequence of saving humanity from the deadly COVID19 Virus. Not to mention the seriousness of this new crisis as it may impact the lives for several months and years if not handled properly. Well, the crisis we are talking about is the Economic Crisis. Recently, the Indian economy had been in the news due to the 23.9% GDP contraction in the first quarter of FY 2020-21. Well, why not? The lockdown has affected everything, be it the basics of human life like social engagements to the economy and global power structure. The reigns are now mainly in the hands of the government to breathe life into the economy while fighting a long fight against the COVID Virus.

The Indian Government knew the consequences of the entire nation going into lockdown for months, but that was needed to save the people from the growing rage of the COVID Virus. While the policymakers knew the effect, they put up “Atmanirbhar Bharat” – A scheme of Rs 20 Lakh Crores to instill a sense of confidence in the Indian economy right after the Unlock steps came into full swing. The Atmanirbhar Bharat Scheme would have given a fillip to the Indian economy by fueling the agriculture and allied sector with money to push for exports, or at least that is what the government thought. Nevertheless, the scheme is far from perfect and does not address the problem in the current world scenario. Another problem that has been in the offing is the prolonged pending state’s share of GST dues. “An Act of God” has been the go-to line for the Central Government to deny states the funds that are rightfully theirs. Cash crunched state government would not fare well in terms of development when the states are left to deal with COVID on their own now. Even the Central government’s fall in revenue is quite a concern.

The problem currently the Indian economy is facing is cyclical: the people were unemployed due to lockdown, and hence the private income of the people was low, leading to a fall in demand, accentuated by the fall in supplies in goods due to the nationwide lockdown. To tackle this particular issue, the government should instead focus on creating demand while slowly easing the lockdown rather than scurrying and unlocking and boosting the supply side of an already profitable sector. Besides this, the importance of the middle class cannot be less stressed. In a country where consumption drives a huge chunk of GDP, policies focused on middle-class spending are currently go to. The middle class has the potential for the drivers of growth but what is needed is a boost in their private income and which, in turn, will lead to a rise in consumption. There is a growing consensus among economists for a tax holiday or, if not, a tweak in taxes for a quarter or two. However, the already cash crunched Central Government would not favor such a policy. The way out of this can be using up the foreign exchange reserve, which has seen tremendous growth recently to become the fifth-largest globally with $500 Billion.

The government has been micromanaging the economic situation and wooing the people due to the state elections by taking the focus away and not addressing the actual issue. IMF predicts that this could be the nation’s worst economic slump in 4 decades, where GDP may shrink to 4.5%. While uncalibrated lockdowns and unlocking have led to a rise in cases of late, a second wave of the COVID would be the last nail in the coffin for the nation’s economic recovery within this calendar year.