Viewpoint: Strategic policy reforms

20 DEC,2020 | MEDC


 

India’s huge internal market remains its potentially strongest economic asset. Our huge consumption base is our biggest growth driver. It is heartening to know that the government is becoming more comfortable in loosening its purse strings to launch an increasingly larger fiscal stimulus, and that infrastructure development remains a cornerstone of its agenda. India’s strong macroeconomic fundamentals have attracted record FDI even during the pandemic period, and there is an urgent need to strengthen them to the extent possible through strategic policy reforms. Signs of revival are becoming increasingly visible across the board, but industry needs to be clearer about its expectations, so that policymakers can act accordingly to fulfil them to the extent possible. No stigma should be attached in resorting to policy flip-flops, if they are conducted in the national interest. Even though it is politically appealing MSP is not an economically efficient idea, and it may be time to reconsider the blanket exemption on agricultural income, because there are also many rich farmers throughout the country who can help their poorer brethren to avail of MSP support. Besides, the new farm laws will bring in private investment and empower farmers to experiment with new solutions for dealing with old problems. Protectionism is today a misnomer … in the long run, it does our economy more harm than good. For attracting global investment, we need to signal the openness of our economy to the world. The pandemic has badly dented India’s growth and employment generation prospects, and, unless concrete action is undertaken in the forthcoming Budget, it will continue to decline. Much of tomorrow’s growth momentum will come from the private sector and so it needs to be given all possible policy support. Efforts should be made to convert India into a global manufacturing hub, as we do have many innate competitive advantages, which need only a few policy tweaksbefore being released to the world. Given the size and inertia of pre-committed expenditure, there is limited room for fiscal manoeuvrability. Our best bet is to hope for a vibrant tax buoyancy based on solid economic growth. Thanks to RBI’s actions, there is ample liquidity in the system, but that is not directly correlated with economic growth. Some strategic intervention is also warranted in the financial services sector as many commercial banks have been periodically exposed to NPA cycles which have adversely impacted their balance-sheets. Economic revival is a marathon and not a sprint. Our economy is facing a crisis which is too good to waste. Policymakers should use this Act of God as an opportunity to push through politically difficult reforms. This is the time to bite the bullet.

*Photo Credit: Google

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