5 ways Nirmala Sitharaman can boost growth to counter the economic slowdown
5 ways Nirmala Sitharaman can boost growth to counter the economic slowdown
With the new government sworn in and ministries allocated, the focus has now shifted to the full Budget for the year. Finance Minister Nirmala Sitharaman is scheduled to present the Budget on July 5, 2019. Two key issues facing her are the slowdown in the economic growth rate and rampant unemployment for which the government has been much criticized. She will also need to focus on boosting demand but remain on the path of fiscal consolidation at the same time.
The government intends to retain the contents of the Interim Budget that was presented in February; but some tweaks may be in the offing. In order to achieve its objective, the new Finance Minister can undertake the following five steps:
Providing monetary boost: This has already happened with the Reserve Bank of India having slashed its repo rate by 25 basis points on June 6. It could now look at boosting private investment which would help counter slowing economic growth.
Increasing farmer income: The agriculture sector has been witnessing bottlenecks which has not only hampered the sector but overall economic growth as well. The Finance Minister may need to look at introducing policies which can benefit the sector which employs a sizable population. Increasing farmer income may be one of the options that can be assessed.
Increasing liquidity in the financial system: A drop in consumer demand has negatively impacted several sectors, which has led to their money been locked into their businesses. With liquidity in the financial system being low, their efforts to ride out the slump are hitting a wall. Nirmala Sitharaman could work with the RBI to increase liquidity in the system. According to a report, the government may look at infusing Rs 40,000 cr in public sector banks in order to benefit all sectors seeking more liquidity.
Addressing the NPA issue: Indian banks have been impacted by non-performing assets (NPA). A stricken banking sector cannot support other sectors of the economy, especially when demand is declining. The government will need to get strict with NPAs, which have crossed the figure of Rs 7 lakh cr by the end of March.
Enforce GST compliance: GST can be revolutionary for India, but its effect will not translate to higher tax revenue unless the government gets strict with GST compliance. GST collection has improved in the past three months, but this needs to be streamlined further to meet its 2019-20 tax revenue target.
The government intends to retain the contents of the Interim Budget that was presented in February; but some tweaks may be in the offing. In order to achieve its objective, the new Finance Minister can undertake the following five steps:
Providing monetary boost: This has already happened with the Reserve Bank of India having slashed its repo rate by 25 basis points on June 6. It could now look at boosting private investment which would help counter slowing economic growth.
Increasing farmer income: The agriculture sector has been witnessing bottlenecks which has not only hampered the sector but overall economic growth as well. The Finance Minister may need to look at introducing policies which can benefit the sector which employs a sizable population. Increasing farmer income may be one of the options that can be assessed.
Increasing liquidity in the financial system: A drop in consumer demand has negatively impacted several sectors, which has led to their money been locked into their businesses. With liquidity in the financial system being low, their efforts to ride out the slump are hitting a wall. Nirmala Sitharaman could work with the RBI to increase liquidity in the system. According to a report, the government may look at infusing Rs 40,000 cr in public sector banks in order to benefit all sectors seeking more liquidity.
Addressing the NPA issue: Indian banks have been impacted by non-performing assets (NPA). A stricken banking sector cannot support other sectors of the economy, especially when demand is declining. The government will need to get strict with NPAs, which have crossed the figure of Rs 7 lakh cr by the end of March.
Enforce GST compliance: GST can be revolutionary for India, but its effect will not translate to higher tax revenue unless the government gets strict with GST compliance. GST collection has improved in the past three months, but this needs to be streamlined further to meet its 2019-20 tax revenue target.
Takeaway-
- The Finance Minister has some major challenges to get the economic growth of India back on track and boost consumer demand.
- At the same time, she does not have the leeway to hand out sops as this will detract the government from fiscal consolidation.
- But firm steps targeted towards specific issues can help her take a balanced approach in order to solve all major issues.
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