In the context of recent economic slowdown in India, the government will have to find ways to revive growth while remaining committed to maintaining the fiscal balance. Examine (200 Words)
Refer - Business Standard
Enrich the answer from other sources, if the question demands.
IAS Parliament 5 years
KEY POINTS
· The Indian economy is in a difficult situation and the possibility of rating downgrades will only exacerbate the complications in economic management.
· Growth in the Indian economy slipped to a six-year low of 4.5 per cent in the second quarter of the current fiscal year and high-frequency indicators are not pointing to a sharp recovery in the coming quarters.
· Even though S&P rating agency expects economic growth to pick up, it rightly notes that a return to sustained high growth will depend on structural reforms.
· Among other factors, stress in both the banking and non-banking financial sectors is affecting the flow of credit in the economy, resulting in lower growth.
· This has also limited the transmission of lower policy rates of the Reserve Bank of India, despite the availability of ample liquidity in the system.
· Further, as S&P correctly highlighted, complications in the implementation of goods and services tax (GST) created some disruption in the economy.
· The importance of addressing all issues in the GST system cannot be overemphasised. The GST Council should comprehensively review and urgently address all the gaps in the system.
· The underperformance of the GST system has also worsened the fiscal position of both the central and state governments.
· Besides the pressure on sovereign ratings, higher deficit and borrowings can create distortions in the financial system, impeding growth in the medium term.
· Thus, the focus should be on easing restrictions on the functioning of markets, including factor markets such as land and labour, to push India’s potential growth.
· The government should also revisit its approach to global trade. Stagnation on the exports front, as has been the case over the last few years, will restrict the possibility of returning to a higher growth path.
