Indian officialdom has all but acknowledged what many suspected all along — that there is something amiss about the growth narrative. A lowering of the projections made in the Economic Survey, from 8.1-8.5 per cent to 7.5 per cent, hardly comes as a surprise, given a 14 per cent deficient monsoon, persistently negative exports and indifferent industrial growth. The finance ministry expects a ₹50,000-crore shortfall in revenue collections, against the budgeted estimate of ₹14.5 lakh crore. It has promised that the fiscal deficit target of 3.9 per cent of GDP will be adhered to, without serious cutbacks in expenditure. Indeed, while the Budget rightly prioritises capital spending in infrastructure, setting aside some ₹70,000 crore, it is worth considering whether a larger sum is needed to get the investment cycle going — even if this entails a small deviation from the fiscal deficit target. The Reserve Bank of India’s Monetary Policy Report released a few days ago says, “the outlook for investment demand remains lacklustre with a shrinking pipeline of greenfield projects, lack of forward movement in the brownfield pipeline,… persisting under-utilisation of capacity and build-up of finished goods inventories”. The RBI has “frontloaded” its rate cuts and is helping banks deal with stressed assets so that they can lend freely. But that may not be enough to spur investment, given the poor demand impulses, borne out by flat tractor and auto sales, and the stock of unsold homes. There can be no better time than now to impart an intelligent, rather than populist, fiscal stimulus — with inflation under control and oil prices not posing pressures on the subsidy front.
The Centre has rightly sought to address the lack of ‘ease in doing business’. This should be persisted with, even if it meets with resistance from the bureaucracy and even a section of industry which has learnt to work the system, regarding it as a useful entry barrier! A trade policy that prevents haemorrhaging of small- and medium-scale units, particularly in the capital goods sector, must be worked out for ‘Make in India’ to become a reality. A demand-led emphasis must be one that promotes labour-intensive industry. Demand deficiency should be viewed as a structural problem, rather than one that results from episodes of monsoon failure or external shock — even if our poverty rates (12.4 per cent, according to the latest World Bank estimate) are on the decline.
If a fiscal push is given, it should go beyond physical infrastructure and focus on two rather neglected areas: agriculture and education. Reforms in the education sector are crucial to improve labour productivity. This calls for a more thorough approach than the twin slogans of ‘Skill India’ and ‘Digital India’ suggest. Agriculture needs a switch towards cropping patterns that are in tune with soil and climatic conditions, with the requisite infrastructure and extension services in place. In sum, ‘growth’ could do with considering smarter, more holistic policies than we have seen so far.