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India needs a new economic policy.

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GS 3 – Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Tags: #indianeconomiclowdown #modigovteconomicpolicy #hindugrowthrate #economicreforms #thehinduanalysis.

Recent News:

• National Statistical Office (NSO) has released the 2022-23 GDP fourth-quarter growth rate figures.
• The results paint a less bright image than what the Press Information Bureau portrays in its media publications when compared to fourth-quarter figures from the prior year.

National Statistical Office (NSO) Data-

First COVID-19 pandemic quarter of 2020-21, i.e., April 1 to June 30, 2020, GDP growth rate was minus 23.8% when compared to GDP of the same period in 2019-20.

Three findings from NSO data from 2014–2015 are crucial for a reality check

1. GDP growth rate has been dropping annually since 2015–16 and dropped to 3.5% in the fourth quarter sarcastically called by Economist as “The Hindu Rate of Growth” — 3.5% growth rate in GDP.
2. Second, it’s critical to acknowledge that since 2014, Prime Minister Narendra Modi’s well publicized “Vikas” has increased GDP at the same so-called “Hindu rate of growth” as that seen between 1950 and 1977, or the Socialist era.
3. During the tenures of P.V. Narasimha Rao and Manmohan Singh, 1^st time GDP growth rates rose between 6% to 8% per year over a 15-year period, i.e., 1991-96 and 2004-2014 with the usual cyclic ups and downs

 P.V. Narasimha Rao and Manmohan Singh introduced economic reforms of 1991 that are widely credited with transforming the Indian economy:

• Liberalization of the trade and investment regimes: lifted import controls and allowed foreign investment in a range of sectors.
• Privatization of state-owned enterprises: began the privatization of state-owned enterprises, which had become inefficient and bloated.
• Deregulation of the financial sector: deregulated the financial sector, making it easier for businesses to get loans and invest.
• Reduction of fiscal deficits: reduced the fiscal deficit, which had been a major problem for the Indian economy.
• Reform of the tax system: simplified the tax system and reduced taxes, making it easier for businesses to operate.

LPG REFORMS OF 1991-

• Liberalization: reforms reduced government controls on the economy, such as import quotas and tariffs. This made it easier for foreign companies to invest in India and for Indian companies to export their goods.
• Privatization: privatized a number of state-owned enterprises. This helped to reduce the government’s debt burden and to improve the efficiency of the economy.
• Globalization: opened up the Indian economy to foreign investment and trade. This helped to bring new technology and capital into India, and it helped to boost economic growth.

Impact of LPG Reforms on various sectors-

Continuous decline in GDP growth rates which began in 2016 continues Decline even now:

• Government has failed to structure economic policy coherently, there is no clear plan or strategy for how to achieve the government’s economic goals. Instead, the government has implemented a series of ad hoc measures that have not been effective in boosting economic growth.
• Declining GDP à This is a major concern, as it indicates that the Indian economy is not growing as fast as it could be, likely due to a number of factors, including the Modi government’s economic policies, the global economic slowdown, and the COVID-19 pandemic.
• Rosy predictions, such as $5 trillion GDP by 2024.imply an annual doubling of GDP in five years, or a 15% annual growth rate of GDP. There is no evidence to suggest that the Indian economy is capable of achieving such growth rates.
• These predictions are not supported by any policy structuring. This means that there is no clear plan or strategy for how to achieve these goals. Instead, the government is relying on wishful thinking and hoping that the economy will grow at these unrealistic rates.

Steps to be taken-

• Economic policy should be clearly defined and prioritized objectives:

1. The government should have a clear understanding of its economic goals,
2. What should be incentivized and what should be deleted or discontinued,

In today’s dark economic condition, it is essential that personal income tax is abolished and Goods and Services Tax scrapped to incentivize investors and earners.

• Economic policy should incentivize investment and growth:

1. The government should create a favorable environment for businesses to invest and grow.
2. This could include tax breaks, subsidies, and other incentives.

• Resources mobilization through indirect taxes and also by liberal printing of currency notes and which is circulated by paying wages to the employment generated in public works.
• Annual interest paid on fixed-term savings in bank accounts should be 9% à to increase purchasing power of the middle classes.
• Interest rates on loans to small and medium industries should not be more than 6% of the loans to increase production of these sectors, and thus employment.
• Flexible and adaptable the government should be prepared to adjust its in response to changing economic conditions.

 MARKET – CAPITALISM-

The market system is not an unrestricted environment or a stop solution. It is organized with transactional rules.

• Capitalism is an economic system based on the private ownership of capital goods and the means of production, with the goal of making a profit which helps in innovation ,boosts manufacturing productivity and GDP growth rates.
• This was recognized even by communist nations like China. It permitted the socialist economic system to perish while Deng Xiaoping served as the country’s head, and a market-based economic system was introduced i.e. capitalism
• Deregulation shouldn’t also imply that we oppose government action to provide safety nets, promote diversity, address market failure, and level the playing field.
• Because aim of government is public welfare which should not be compromised
• Democratic institutions have to be empowered to guard against public disorder arising from rapid de-regulation — as it happened in Russia post-1991. Russia experienced chaos and misery, dictatorship returned for the Russians, causing loss of human rights and democratic values.

Conclusion:

To give the underprivileged a stake in the system, there must be a trade-off between the public sector and deregulation and the sale of loss-making units, increased employment through affirmative action, and simple access to social security and a safety net, which promotes transparency, accountability, and corporate governance in order to legitimate profit-making, which powers the market system, on an even playing field in a competitive environment. By taking such actions, monopolistic tendencies are lessened and a democratic, peaceful society is formed.

Source: The Hindu.

 Mains Question-

1. What are the policy measures that the government can take to address the Current Economic Slowdown?
2. Analyze the factors that have led to the current economic slowdown in India?