In the nationwide din of protests over the Citizenship (Amendment) Act, or the CAA, and the proposed National Register of Citizens (NRC), it’s easy to lose sight of the more pressing issues. 'It’s the economy, stupid', to borrow Bill Clinton’s 1992 presidential campaign-winning slogan. The Indian economy is in the midst of a prolonged slowdown. It has been growing at just 5 per cent, marking six consecutive quarters of slow growth. Constraints on the economy are from both the supply and the demand side. Factories are not producing cars and real estate developers aren’t building houses because people aren’t buying. Fast Moving Consumer Goods (FMCGs), a traditional bellwether for the economy, aren’t moving fast enough. Sales in the September 2019 quarter increased by just 2 per cent compared to 16 per cent a year ago. Investments, both private and public, plunged to a 15-year low in the quarter ending June 2019.
In her previous budget, finance minister Nirmala Sitharaman presented an aspirational but not unachievable target of making India a $5 trillion economy by 2024. That target now seems like a mirage. India’s economy needs to grow at 9 per cent to reach that target. The current growth rate is half of that — 4.5 per cent in the September quarter and it was 5 per cent in the quarter before that.
The economy is yet to recover from the triple shocks of demonetisation, poor GST rollout and a stressed banking sector. The government has been able to meet its monthly trillion-rupee target only for a few months since the GST was implemented two years ago. Lower revenue collections make it tougher for the government to infuse cash to jumpstart the economy.
The fiscal deficit — the shortfall between government revenue and expenditure — was already breached last October. Government measures on the supply side, to increase industrial output by lowering taxes, have failed. This has raised a clamour to increase consumption either through a direct cut in taxes or higher spending on infrastructure that could potentially kickstart labour-intensive sectors such as manufacturing and construction.
Given the prolonged economic slowdown, expectations from this year’s budget are high. This is the reason why it has become more than an income-expenditure statement of the central government. 'A Do-or-Die Budget', our eighth cover on the economy since April last year, written by Executive Editor MG Arun and Deputy Editor Shwweta Punj, looks at why this budget is especially vital for this government. It needs to present a vision, a growth narrative on how it intends to make India a globally competitive economy and also spell out a clear roadmap to pull the economy out of the rut.
We also consulted our Board of India Today Economists (BITE), who have all suggested that the government take the problem head-on rather than postpone decision-making and use the budget as an opportunity to get the process going.
Most of them agree on a few basic initiatives the government should act on: let the fiscal deficit slip; increase rural incomes through direct benefit transfers and effective implementation of schemes like MNREGA; pursue aggressive disinvestment and asset sales; cut wasteful government expenditure; and reform the corrupt and indifferent bureaucracy.
Most importantly, as the government battles the blowback of the CAA, it needs to send out the message that the economy is its most urgent priority. Since every challenge is an opportunity, the government should use the slowdown to carry out radical reforms. Nothing integrates a nation better than economic prosperity. Divisions in society begin to dissolve when there is a feeling of all-round well-being. As the saying goes: a rising tide lifts all boats.
(India Today Editor-in-Chief's note for the cover story, A Do-or-Die Budget, for January 27, 2020)