Various kinds of structural shift that induce investments could prevent Indian economy from a reversal of capital flows. Explain (200 Words)
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IAS Parliament 3 years
KEY POINTS
· Despite the staggering destruction of demand by the covid pandemic, inflation is stubbornly high and the fiscal situation is much worse than what it was in 2013.
· Fiscal deficit and debt-to-GDP (gross domestic product) numbers are high, but biased upwards by a countercyclical fiscal response in a year of GDP contraction.
· Foreign exchange reserves provide an incomplete picture of India’s vulnerability to capital flight.
· According to latest RBI data, while our reserves stand at $610 billion, India’s external debt is $570 billion and about $300 billion of this is due in the next two years.
· India has funded its current account with capital inflows. A high investment rate is essential for the sustainability of current account deficits.
· Ground breaking reforms such as the Insolvency and Bankruptcy Code (IBC), the goods and services tax (GST) and the farm laws.
· While GST has improved tax compliance, an erratic and unreliable information technology backbone has greatly increased compliance costs for smaller firms.
· Big-ticket reforms for land acquisition, privatization, asset monetization and in the judiciary are much needed.
· While reversing the current account deficit will require a more structural long-term response, in the short run, the best way to inoculate the economy against volatile portfolio flows is by implementing deep reform measures.
Hari Prasath 3 years
Please review
IAS Parliament 3 years
Good attempt. Keep Writing.
