With a new government taking office after the General Elections 2019, here is a look at the key economic priorities in the coming years.
What is the current economic scenario?
The economic scenario of the country is considerably weak.
The GDP growth in the second half of 2018-19 had fallen to around 6.5%, below the trend growth rate of India (7%).
IIP contracted to a 21-month low of 0.1% in March, 2019 on the backdrop of weak investment and consumption demand.
For the 2018-19 financial year as a whole, IIP growth stood at 3.6%, much lower than 4.4% recorded in previous financial year.
The automobile sector has been witnessing a subdued growth and the passenger car segment saw a decline of 16% in April 2019.
The FMCG (Fast-Moving Consumer Goods) sector has also been seeing a slowdown in volume growth.
Consumption demand, which was the bulwark of the economy, has weakened and private investment is yet to show signs of a pickup.
Evidently, the economy is going through a cyclical downturn.
The slowing consumption and subdued growth in exports could keep India's growth rate under pressure in the near future.
What should be the focus areas?
Speeding up the bad loan resolution process under the Insolvency and Bankruptcy Code (IBC) is a key element in the growth revival process.
In nearly 48% of the cases (or 548 Corporate Insolvency Resolution Processes-CIRPs), resolution could not be achieved within 180 days.
A total of 362 cases (around 30% of the ongoing CIRPs) surpassed the outer limit of 270 days set out in the IBC.
Addressing this will boost capital, by freeing up resources for banks to lend further, improve credit availability and support growth.
Addressing liquidity issues of the Non Banking Financial Companies sector is expected to be another priority.
A number of NBFCs has put a stop to fresh loan disbursements while many are on the verge of defaulting on their repayments.
NBFCs account for a large part of credit disbursal in tier II and tier III towns.
Notably, the crisis in the NBFC sector threatens to engulf the entire financial sector; its revival is critical for the economy.
The government is also expected to further step up capital infusion in public sector banks.
While infrastructure segment has seen a pick up in credit demand over the last 1 year, credit growth for the industrial segment continues to remain weak.
Private sector investment needs to revive as it may provide the necessary boost to the economy.
The government expenditure would require a commensurate growth in revenue collections.
This is an area where the government struggled in the previous financial year.
Both direct tax revenue and GST revenue have fallen short of the revised budget estimates for 2018-19 by at least Rs 1 lakh crore.
Going ahead, meeting the already declared direct tax targets for this financial year is going to be a tough task.
The focus could be more on boosting compliance, simplifying procedures and a move towards inclusion of some of the items that are currently out of GST’s ambit.
Labour reforms did not complete the course mapped out by the government in its first term.
The labour and employment ministry had drafted four labour codes:
industrial relations
wages
social security and welfare
occupational safety, health and working conditions
This was done by amalgamating, simplifying and rationalising the relevant provisions of the existing 44 central labour laws.
However, none of it was enacted through the legislative route.
Along with implementing this, employment generation, especially of good quality and with decent wages, would be crucial in the coming years.
