Context:

The editorial talks about the need for well-crafted economic remedies and strategies, essential to resolve the economy’s structural problems.

Issues:

• Official estimates released on the new government’s first day in office, show GDP growth slowed to a five-year low of 6.8% in 2018-19, even as the unemployment rate rose to a 45-year high of 6.1% in 2017-18.
• Agriculture gross value added (GVA) growth is estimated at negative 0.1% and manufacturing GVA growth at 3.1% in the January-March quarter.
• The economy is struggling with an investments and a manufacturing slowdown, rural distress, unremunerative farm incomes, stagnating exports, a banking and financial mess and a jobs crisis. Sales figures from fast moving goods makers and continuing production cuts at car manufacturers confirm that consumption spending have slowed.
• The economy is also beset by a consumption slowdown as reflected in the falling sales of everything from automobiles to consumer durables, even fast-moving consumer goods.
• Private investment is not taking off, while government spending, which kept the economy afloat during the last NDA government, was cut back in the last quarter of 2018-19 to meet the fiscal deficit target of 3.4%.

Details:

• The present government in its previous tenure began well but soon lost direction.
• The announced plans for structural reforms spanning an overhaul of labour and land policies and a much-needed manufacturing push, ‘Make In India’, had been abandoned by the end of 2015.
• Demonetisation had marginal to low impact on extinguishing black money, curbing fake notes, reducing currency in circulation, and lowering the proportion of high notes in the economy, in addition to the poorly designed rollout of the Goods and Services Tax (GST) regime.
• Despite repeated reminders to the Prime Minister’s Office from Finance Ministry bureaucrats, the decrepit public banking system and the problems of the financial sector received little policy attention.
• Even the insolvency and bankruptcy reform, a sound economic reform, that got rolled out is already in danger of getting diluted.
• The Constitution was hurriedly amended for rolling out reservations based on economic criteria.
• Fiscal giveaways for middle class Indians and farmers dominated the Interim Budget presented in February, ignoring the magnitude of challenge on the economic front.
• Redistributive taxation policies alone cannot be considered a remedy. Deeply entrenched factors hinder the poor’s access to income-enhancing skills, education, health and job opportunities and obstruct the trickle-down of growth to the poor.

 Way forward:

• Current scenario calls for economic growth model or strategies for reducing poverty, unlike temporary reliefs such as public provision of toilets, cooking gas connections and dwellings or Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wage jobs and income supplement schemes.
• Reducing poverty needs economic growth to generate sustainable livelihoods for the poor.
• If production is less capital-intensive, more organised sector jobs will be created. Plus, labour’s bargaining power will improve.
• For the role they play in jobs creation, smaller firms ought to be incentivised with easy credit and taxation norms.
• In response to the questions raised over unemployment and GDP statistics, credibility in the collection, estimation and presentation of official statistics has to be addressed appropriately by including eminent economists and statisticians.

The cumulative neglect of reforms over the years by successive governments has ensured that the economy is falling short of both its growth potential and the people’s aspirations. Mere pursuit of fiscal and monetary policy adjustments is not going to unlock India’s economic growth potential, which is impossible without banking, land and labour reforms that no government so far has been able to deliver. The top economic priority for the new government ought to be credible course correction in its attitude to policy — its formulation, articulation and the setting of goals.