The policy way out.

The policy is way out.

News

India is in the middle of a sharp growth slowdown. The debate surrounding the slowdown is whether it is a cyclical downturn or a structural correction. Diagnosing the problem is key for devising policy responses.

Slowdown

Cyclical slowdowns can be dealt with using temporary fiscal and monetary stimulus.
Structural problems require long-run policy responses.

The slowdown is structural – Oil imports

Most of the growth between 2014 and 2017 was sparked by a sharp increase in government spending.
Given India’s oil imports, the decline in the world price of oil by almost $50 a barrel between 2014 and 2016 represented a windfall revenue gain of 3% of GDP.
Since the fiscal deficit barely moved, the government effectively used the windfall to finance various government schemes.
Now that oil prices have reverted towards their previous levels, a stable fiscal deficit demanded a reduction in government expenditures.

Structural slowdown – investment demand

Throughout the period 2016-2018, there was a criticism of the Monetary Policy Committee’s refusal to cut rates.
It was argued that high real interest rates, along with the restrictions by RBI on banks’ lending to deal with the NPA problem, were jointly responsible for low investment demand.

Sovereign bonds:

The idea needs to be pursued for multiple reasons.
Sovereign bonds would force government debt to be priced in a more competitive setting. Currently, it is priced in a sheltered domestic bond market.
Issuing sovereign bonds will force greater clarity and transparency of macroeconomic data since international creditors will demand that.
Things like failure to achieve policy targets or reticence in releasing data will attract rapid punishment by markets. This will provide greater discipline for policymaking.

Way ahead:

The government should revisit the appointments process to key technical and regulatory bodies.

Functions like monetary policy, banking supervision, data collection and dissemination, the audit of government financial accounts need to be independent of government direction.

Source: Indian Express

Join Our Telegram

What PMC means.

Going down together

Oceanic Anoxic Event 1a and MASS EXTINCTION

25 Dec, 24
SHARE

Oceanic Anoxic Event 1a from the Paris Basin (Environment) Paper-3 PMP OAE 1a refers to a period during the Cretaceous Period (145 million years ago and ended 66 million years ago) when Earth's oceans became depleted of oxygen, causing a significant disruption in marine life. Cause: The event is believed to have been

Viksit Panchayat Karmayogi (Good governance)

26 Dec, 24
SHARE

Viksit Panchayat Karmayogi (Good governance) Governance GS PAPER-2 PMP Dr. Jitendra Singh launched the ‘Viksit Panchayat Karmayogi’ initiative on Good Governance Day, celebrated to mark the 100th birth anniversary of former Prime Minister Atal Bihari Vajpayee. The initiative, which is part of the broader ‘Prashasan Gaon

Major programmes to control Air Pollution

23 Dec, 24
SHARE

Major programmes to control Air Pollution National Clean Air Programme? It was launched by the Ministry of Environment, Forests and Climate Change (MoEFCC) in January 2019. It is the first-ever effort in the country to frame a national framework for air quality management with a time-bound reduction target. The

Air pollution and Air quality Measures in India

21 Dec, 24
SHARE

Air pollution and Air quality Measures in India (Environment) GS Paper-3 P-M-P Air pollution may be defined as the presence of any solid, liquid or gaseous substance including noise and radioactive radiation in the atmosphere in such concentration that may be directly and/or indirectly injurious to humans or other l

Geopolitical Significance of Ports

20 Dec, 24
SHARE

Geopolitical Significance of Ports (IR) Act as geopolitical assets: Ports enhance the projection of strategic reach, which helps strengthen the country’s control over important sea and energy supply routes. E.g. Indian Navy’s staging base at Agalega Islands will enable marine patrols