THE recommendations of prime minister’s economic advisory council, headed by Bibek Debroy, not to drift away from fiscal consolidation is a sane advice for Narendra Modi’s dispensation. Though focused intervention to stem the economic slowdown and job losses was in order, pushing up public expenditure by $7.7 billion and thereby derailing the delicate apple cart on the fiscal front may not be the right option. Conversely, India has only received one ratings upgrade in the last 25 years and slight movement on the needle to pump prime the economy would not have been such a bad idea after all.
With GDP growth slipping to 5.7 per cent in April-June 2017, the lowest in three years. It is imperative that the government does something to revive the consumption story. The first meeting of economic advisory council held on Wednesday has rightly prescribed that finance minister Arun Jaitley should not move away from keeping the vital economic parameters within targeted level. For instance, inflation will have to be maintained within the targeted 4 per cent, plus or minus two per cent level, fiscal deficit at 3.2 per cent and phasing out the current account deficit (CAD) from the prevailing 1.5 per cent.
Some hawks in the government have been gently nudging the government to come up with a fiscal stimulus package like Pranab Mukherjee did during 2008-09 in the aftermath of global melt down. It’s against this backdrop that Modi revived the economic advisory council that was disbanded after he took charge in May 2014. Modi had not appointed an economic advisor unlike his predecessors Manmohan Singh and his own party veteran Atal Bihari Vajpayee. The latest council appointed a few weeks back has been packed with economists to advise him on the road map to extricate the economy from slowdown phase and bring back jobs.
Dutifully, the Debroy panel has decided to identify 10 areas where some independent study and scientific analysis was undertaken to recommend corrective measures before the exercise for next budget preparation begins.
Debroy’s committee need not be overwhelmed by the bombastic presentations made by chief economic advisor Arvind Subramaiam nor his prognosis. Debroy may have to consider the political implications of not reversing the economic slide, job losses and suggest measures to create new work avenues that can change the mood of the nation.
Instilling confidence amongst investors — both domestic and foreign — to resume their investments and complement the public spending done thus far can go a long way in giving a booster dose to economy. Modi, along with Jaitley can begin meeting industry captains in groups to address the sector-specific and individual issues. Identifying specific issues that can give a leg up to rural infrastructure through existing institutional framework may have to be explored by Debroy committee.
For instance, government can consider doubling number of workdays to 200 under Mahatma Gandhi rural job guarantee scheme to bolster their incomes. Restructuring MGNREGA to build rural infrastructure may have a cumulative impact on economy. Also, linking MNGREGA with farming or road building can be an option. Thirdly, establishing linkages between rural producers and urban markets methodically can work wonders.
Infrastructure push has been talked about for long. Barring, roads, shipping and railways, sectors like aviation, ports and airports can offer a lot of opportunities. Given that defence sector has been opened up, realising projects on the ground by sewing alliances between both domestic and foreign investors quickly, can provide the desired momentum to the economy.
As hinted by Debroy, cleaning up banking sector must be prioritised in conjunction with Reserve Bank of India (RBI) especially while dealing with insolvency cases before the paranoia spreads among all the industry players facing a liquidity crisis.
Taking the heat off the corporates and businesses that feel threatened from law enforcing agencies may have the desired effect while fiscal issues could be dealt with while presenting the next budget.