New Delhi: Prime Minister Narendra Modi is expected to announce an economic package soon to revitalise a moribund economy. The government could either go for a fiscal stimulus (increase government expenditure more than budgeted or cut taxes to stimulate demand) or a monetary stimulus (cut benchmark interest rates). However, the latter doesn't seem very likely since the Reserve Bank of India has its own concerns around inflation. Other reports indicate that the government could ask departments to expedite their already budgeted expenditures rather than committing fresh funds. News18 spoke to three economists about their diagnosis of the Indian economy and what steps should be taken. Here is what they have to say:
Upasna Bhardwaj, senior economist, Kotak Mahindra Bank
Although demonetisation and GST caused disruption across various sectors, especially in manufacturing and real estate, there had already been an economic slowdown for at least two quarters preceding these two events. GST implementation has largely affected the semi-organised sectors given the heavy procedural and compliance issues.
By April 2016 there already were signs of a slowdown. Private investment has been missing completely for the last 2-3 years. In such a scenario, private consumption and government capital expenditure has been keeping the economy afloat.
Going ahead, given that we are not expecting private investment to pick up, the onus lies on the government, especially when there is limited room for interest rate cuts by the RBI amid the uptrend in inflation and an adverse global scenario. The nature of fiscal stimulus by the government should be productive in nature, otherwise we will simply be boosting consumption in the short term which in turn will be inflationary in nature.
Recommendation: The government should spend on productive infrastructure like roads, railways, bank recapitalisation, affordable housing etc. Pick up in construction activity could trigger a virtuous cycle of better jobs and income.
Inflation prediction: 4.7% by end march 2018
Growth forecast: 6.8% with a downward bias
N R Bhanumurthy, National Institute of Public Finance and Policy
The biggest problem right now is on the demand side. Private demand, investments and exports are moribund and only government expenditure is holding up the economy. The shocks experienced over the past 10 months — GST and demonetisation — have taken a toll. Even rural demand is down, because the demand for tractors, seeds etc should have peaked by now, but it is muted.
The economy is in a downturn and it is important for the government to step in with a fiscal stimulus. There is no need to stick to the targets set out in the Fiscal Responsibility and Budget Management Act or relaxing the fiscal deficit targets for the next year. However, the quality of the stimulus is more important than quantum.
Recommendation: The government needs to expand capital expenditure on infrastructure, power, ports, railways, roads and housing.
Inflation prediction: 4%-5% by end March 2018
Growth forecast: 6.8% for this year
D K Agarwal, Chairman and MD, SMC Investments
After demonetisation and GST, things have not gone the way they should have. The small and medium manufacturing units were affected and demand in the economy was compressed. The basic problem now is how to create demand in the economy. The government will have to increase its spending in order to put money in the hands of people so that they can start spending and create demand.
Recommendations: Affordable housing should be taken up on an urgent priority. They should also give some benefits to the real estate sector because Real Estate (Regulation and Development) Act has affected activity there and construction has cooled to some extent. RERA is beneficial to large developers, but the small and unorganised developers are finding it difficult to comply with the provisions.
Inflation prediction: Don't see it going up from current levels
Growth forecast: 6.5% to 7%
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