Speaking at the Hindustan Times Leadership Summit, finance minister Nirmala Sitharaman gave a glimpse of the government’s thinking regarding the economy. The minister’s remarks suggest guarded optimism. While recognising green shoots in the economy, she was categorical in saying that hopes of a growth revival in the current quarter cannot justify complacency on the economic front. She hinted at various steps that the government is considering to help the economy and business sentiment. These included restraining tax officials from harassing businesses, simplifying India’s tax regime, hinting that a bigger stimulus could be coming in the next budget, and keeping a watch on the crisis of non-banking finance companies. However, she also indicated that the government might not have complete clarity on what is to be done to revive consumer sentiment, deal with the distortions which have crept into the Goods and Services Tax (GST) regime, and in handling the contradiction between high farm prices and welfare of urban consumers.
Coming from the highest levels of policymaking, such a candid approach is welcome. The economy has undergone a fundamental transformation since the 1991 economic reforms. It has been struggling to find a sustainable medium-term growth anchor since the 2008 financial crisis gave a big blow to export demand as an important driver of growth. Demonetisation and the implementation of GST have also tilted the scales against informal businesses. A sustained growth revival cannot be based on attempts to go back to the pre-2008 era. This is where the minister’s emphasis on working on structural constraints and questioning orthodoxy is important. If India has to achieve a big infrastructure push — the government plans to spend ~100 lakh crore in infra projects until 2024 — it needs an overhaul of financial institutions. Similarly, an obstinate adherence to fiscal discipline, even if growth continues to lag, will be unhelpful. However, this cannot come at the cost of the Centre not fulfilling its revenue promises on the GST front to the states. It is welcome that the minister said that this contract is sacrosanct.
The government needs to act as a pragmatic facilitator of growth to put the economy back on a high growth path. This will need a mix of counter-cyclical fiscal policy, structural reforms, and even out-of-the-box thinking, without losing sight of the larger macroeconomic picture. The finance minister’s remarks suggest that there is hope on all these fronts.
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