Economic Growth

Context: It is important that, only if the Indian economy grows at 8% in 2021-22 we will be able to compensate for the decline in 2020-21.

What needs to be done to make Indian economy to grow @ 8%?

  • Accommodative Monetary policy: A reduction in interest rate through changes in policy rate, providing liquidity through various measures, and regulatory changes such as moratorium.
  • Fiscal initiatives: A sharp increase in government capital expenditures which can act as a stimulus for growth. To increase government spending, government revenues should pick up with the rise in GDP and the fiscal deficit must be brought down.
  • Growth and investment: The investment rate has been falling. In 2018-19, the rate fell to 32.2% of GDP from 38.9% in 2011-12. A detailed investment plan of the government and public sector enterprises must be drawn up and presented as part of the coming Budget.
  • Exports: Closing borders may appear to be a good short-term policy to promote growth but it kills growth all around. A strong surge in our exports will greatly facilitate growth, in 2021-22.

What is the way forward?

  • Strong effort must be made to improve the investment climate. The National Infrastructure Pipeline is a good initiative, but the government must come forward to invest more on its own.
  • Reforms are important but the timing, sequencing and consensus building are equally important. For example, Labour reforms, are best introduced when the economy is on the upswing.

The Indian economy in 2019 was at around $2.7 trillion. To achieve the level of $5 trillion, we need to grow continuously at 9% for six years from now.

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