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The economy on autopilot : THE LEAD - THE HINDU

Updated: Aug 18, 2021

The criterion of macroeconomic stability = defined mainly by inflation kept within a range.

  • the potential of the economy, = chosen acts of private agent + not only cannot be improved upon by the government. Based on the maxim = ‘minimum government is maximum governance’ .

Life in the slow lane

  • This government had inherited an economy with quite rapidly accelerating growth and steadily declining inflation. It has barely managed to maintain this scenario. The promised resurgence has not materialised.

  • As per DIPP data = economy attracted increased FDI up to 29 per cent in dollar terms but it did not translate into capital formation in India. FDI is to be encouraged, its ability to make a significant contribution to growth is limited. FDI amounted to a mere 4 per cent of total capital formation in India.

Sticking to fiscal consolidation

  • TWIN-BALANCE SHEET SYNDROME : private investment = restrained by the weak balance sheet of firms. The flip side of this is the high level of non-performing assets (NPAs) of the public commercial banks. TO ask the banks to lend would be poor policy.

  • fiscal consolidation path = Increase public investment by trimming subsidies

Example : the fertilizer subsidy presents the most obvious instance. It has done little to stem the rise in food prices while continuing to take up precious fiscal space.

Looking for inspiration: All indications are that the present government of India is striving to replicate Singapore’s institutional architecture, as in laws governing business, rather than the transformative role of public investment that turned a fishing village into a global destination for FDI.

Bleak agricultural landscape

  • Three of the past five years in India have been years of poor agricultural performance, reflected in persistent food price inflation.

  • creeping climate change with direct consequences for production.

  • Drought-proofing an increasingly vulnerable Indian agriculture V GST.

  • LOST THE CONNECTION . By disbanding the Planning Commission, the Centre has lost a long-standing conduit to the States whose planning boards did have at least a titular connection to the former.

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