Q. Is the gov­ern­ment read­ing the slow­down right? Are the mea­sures they have taken so far to re­vive the econ­omy in the right di­rec­tion and enough?

India Today - - COVER STORY -

A.N.R. BHANU­MURTHY De­spite the 5% growth num­ber for the first quar­ter, some of­fi­cial econ­o­mists still seem to be brave enough to sug­gest that the ‘slow­down is ex­ag­ger­ated’. And this may also be due to the RBI’s as­sess­ment of the growth slow­down as more

of a cycli­cal one. In my view, the ini­tial slow­down was cycli­cal and, as we have not noted this care­fully, it has actually be­come struc­tural. Mea­sures were needed to ad­dress both the fac­tors. The gov­ern­ment came out with some sen­si­ble mea­sures, although they are not suf­fi­cient, and it is ex­pected to come out with some more sec­toral mea­sures. We hope that those mea­sures can help re­vive the econ­omy.

AJIT RANADE

The gov­ern­ment is cer­tainly focused on the is­sue. But it can­not be fixed so eas­ily, be­cause some of the un­der­ly­ing causes are struc­tural and the slow­ing GDP growth is a cu­mu­la­tive out­come. Ad­dress­ing the is­sue of quicker dues set­tle­ment of the MSME sec­tor was long over­due. Cor­rect­ing some of the anom­alies in tax laws was also good. But lots more will need to be done. We prob­a­bly need a big fis­cal push com­bined with re­forms in sec­tors like agri­cul­ture and labour. But there is not enough fis­cal room, which means re­sources will have to be raised via privatisat­ion.

MAITREESH GHATAK

No. Talk about sops to the auto in­dus­try, selective re­duc­tions in GST rates, in­ter­est rate cuts all seem like try­ing to put band-aids on a se­ri­ously in­jured per­son. The main prob­lem has been the gov­ern­ment’s at­tempt to try to for­malise the econ­omy overnight. Mis­guided poli­cies like de­mon­eti­sa­tion, chaotic im­ple­men­ta­tion of GST and flip-flops on spe­cific rates and try­ing to force the use of tech­nol­ogy in social ser­vices are the ob­vi­ous ex­am­ples of this. Com­mand and con­trol poli­cies do not work, as we know from the ex­pe­ri­ence of In­dia dur­ing the li­cence-con­trol Raj. Sim­i­larly, you can­not turn an econ­omy of In­dia’s size and com­plex­ity into a for­mal one overnight as much as China’s at­tempt to in­dus­tri­alise a pri­mar­ily agri­cul­tural econ­omy in a few years in the late ’50s ended in a dis­as­ter of in­cred­i­ble pro­por­tions.

D.K. JOSHI

The re­cent mea­sures an­nounced by the gov­ern­ment are aimed at ad­dress­ing the pain points in the econ­omy and lift­ing the sag­ging busi­ness and house­hold sen­ti­ment. The coun­ter­cycli­cal tools typ­i­cally used by au­thor­i­ties to stim­u­late

“WE NEED A BIG FIS­CAL PUSH AS WELL AS AGRI­CUL­TURE AND LABOUR RE­FORMS. WITH­OUT ENOUGH FIS­CAL ROOM, RE­SOURCES WILL HAVE TO COME VIA PRIVATISAT­ION” —AJIT RANADE

de­mand are the mon­e­tary and fis­cal poli­cies. The fis­cal pol­icy is con­strained to sup­port the econ­omy due to the Fis­cal Re­spon­si­bil­ity and Bud­get Management Act (FRBM) tar­gets. The onus of re­viv­ing the econ­omy, there­fore, is on mon­e­tary pol­icy, but its ef­fec­tive­ness is a bit chal­lenged be­cause of tardy trans­mis­sion of RBI rate cuts to lend­ing rates. In this set­ting, although the an­nounced steps are in the right di­rec­tion, they are un­likely to have the heft to pull up growth to­wards 7%, which is the aver­age of the past 14 years.

R. NA­GARAJ

I am glad that the gov­ern­ment has fi­nally read the writ­ing on the wall. If the scep­tics of the of­fi­cial GDP es­ti­mates are cor­rect, the slow­down could be more se­vere. Mea­sures an­nounced seem in the right di­rec­tion, but [one] can­not gauge the speed of the re­cov­ery with­out read­ing the fine print of the stim­u­lus mea­sures an­nounced.

D.K. SRI­VAS­TAVA

The gov­ern­ment’s read­ing ap­pears to be focused more on the shorter term de­mand slow­down. The mea­sures are sec­torally ori­ented. The di­rec­tion of re­forms is right, but these are not enough. What we need is a broad-based fis­cal stim­u­lus in­jected through in­fra­struc­ture investment.

PRONAB SEN

It is not clear how the gov­ern­ment is read­ing the slow­down, ex­cept for its in­sis­tence that it is cycli­cal and should, there­fore, cor­rect it­self. If this is in­deed cycli­cal, then the gov­ern­ment would need only ex­pan­sion­ary fis­cal/ mon­e­tary poli­cies to cor­rect the tra­jec­tory. If, how­ever, it is struc­tural, as many econ­o­mists think, poli­cies will have to directly tar­get the struc­tural con­straint.

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