STRUCTURAL REFORMS FOR TACKLING ECONOMIC SLOWDOWN
10, Jun 2019
Prelims level : Economics Mains level : GS-III Technology, Economic Development, Environment
Why in News:
- GDP growth slowed to a five-year low of 6.8% in 2018-19, even as the unemployment rate rose to a 45-year high of 6.1% in 2017-18.
Background: / Economic slowdown:
- Official estimates released recently show GDP growth slowed to a five-year low of 6.8% in 2018-19, even as the unemployment rate rose to a 45-year high of 6.1% in 2017-18.
- Agriculture gross value added (GVA) growth is estimated at negative 0.1% and manufacturing GVA growth at 3.1% in the January-March quarter.
- The economy is struggling with an investment and a manufacturing slowdown, rural distress, unremunerative farm incomes, stagnating exports, a banking and financial mess and a jobs crisis.
- Sales figures from fast moving goods makers and continuing production cuts at car manufacturers confirm that consumption spending have slowed.
- The economic priority for the new government ought to be credible course correction in policy — its formulation, articulation and the setting of goals.
Reforms taken in past:
- Structural reforms — spanning an overhaul of labour and land policies and a much-needed manufacturing push, ‘Make In India’, for absorbing the slack from the farms — had been abandoned by the end of 2015.
- The initial energy and enthusiasm gave way to misadventures such as demonetisation and the poorly designed rollout of the Goods and Services Tax (GST) regime.
- The decrepit public banking system and the problems of the financial sector received little policy attention.
- Even the insolvency and bankruptcy reform, a sound economic reform, that got rolled out rather gradually and tentatively is already in danger of getting diluted.
- The Constitution was hurriedly amended for rolling out reservations based on economic criteria and that fiscal giveaways for middle class Indians and farmers dominated the Interim Budget presented in February without considering the magnitude of the challenge on the economic front.
Way ahead: / Generating sustainable Livelihoods:
- Public provision of toilets, cooking gas connections and dwellings or Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wage jobs and income supplement schemes are temporary sources of relief. They are not an economic growth model or strategies for reducing poverty. They can help the poor survive by providing meagre resources for subsistence.
- Reducing poverty needs economic growth to generate sustainable livelihoods for the poor.
- And this cannot be remedied by redistributive taxation policies alone.
- The government’s ‘Make In India’ strategy was a step in the right direction, and needs to
- be revived. Done right, it can absorb the slack from the farms.
- Few organised sector jobs get generated in India because industries prefer capital-
- intensive production despite the economy’s relative abundance of low-wage labour.
- If production were less capital-intensive, more organised sector jobs would be created.
- Plus, labour’s bargaining power would improve.
- The government needs to take up the backlog of economic reforms pending since the first burst in the 1990s.
- For the role they play in jobs creation, smaller firms ought to be incentivised with easy credit and taxation norms.
- Lastly, no evolution of the policy paradigm will be possible if the crisis of credibility in the collection, estimation and presentation of official statistics is not addressed appropriately.
- The new government must leverage the public trust voters have placed in it to get the economy on track. Structural reforms with meticulous planning and proper implementation will help.