THE GIST of Editorial for UPSC Exams : 03 February 2020 (A workmanlike account (Indian Express))

A workmanlike account (Indian Express)

Mains Paper 3: Economy
Prelims level: Union Budget 2020-21
Mains level: Budget and its allocation of resources

Context:

• Targeting policy instruments and actions for achieving specific economic objectives has long been an accepted tenet of macro-economic and financial policy interventions. One lens for evaluating the Union Budget for 2020-21 is to use this framework.
• The present economic slowdown is the result of multiple, complex, interlocking reasons, and it will not be easy to crack this mesh open.

Fiscal arithmetic of the Budget:

• One request from analysts across the board was to present a realistic assessment of the present economic conditions and projections for future growth prospects.
• To a large extent, the Budget has done this, giving a much clearer picture of the off-balance sheet borrowings, which add to the government’s debt and its obligations to pay.
• This will enhance credibility among the investor community while taking decisions on committing capital for India’s future.
• The nominal growth projected for 2020-21 at 10 per cent is feasible, with a stretch, given the expected rise in inflation, which will add around 4 per cent to a projected 6 per cent real growth.
• The revenue projections are more aggressive, assuming a buoyancy which can be attributed in large measure to checking evasion using data analytics.
• The worry is that the growth projections for the two remaining months of this fiscal year, 2019-20, are quite aggressive, and undershooting these will, in turn, make the targets for FY21 even more difficult.

Sources can boost revenue:

• The major boost to revenues is expected from disinvestment and privatisation of central public sector enterprises, together with asset monetisation (selling of various road, rail, land, logistics and other projects which the government has undertaken over the years).
• The target is up sharply to Rs 2.25 lakh crore. This initiative has been one of the core focus areas of the government, and even though politically difficult, has to be lauded — even more for the effects of increasing efficiency in operations and restricting the losses to the public balance sheet.
• Disinvestment revenues are likely to be augmented with higher dividend receipts, including, from higher profits of the Reserve Bank of India.
• Spending, which depends on revenue collection, has also been optimally allocated, with capital expenditure budgeted to increase faster than revenue.
• However, capital expenditure is still a much smaller fraction of total expenditure compared to the committed revenue spending on interest payments, salaries and pensions and subsidies.

Three aspects of the current slowdown:

• The multiple engines of growth have synchronously decelerated — consumption, investment, exports and sporadically, government spending — compared to earlier ones when one or some of these drivers were still functioning.
• This is more a demand-led .............................................

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Chllenges for policymakers:

• To devising stimulus measures is whether this deceleration in growth is more cyclical than structural in nature.
• If it is the former, an aggressive use of monetary and fiscal counter-cyclical policy could yield the desired result.
• f not, then the wait is likely to be longer and will involve more sector specific de-bottlenecking initiatives.
• While there is certainly a cyclical component in the manufacturing segment — the proximate source of the slowdown — there are signs of deeper structural constraints.

Way ahead:

• Overlaid on these structural impediments is a sharp weakening of consumer, investor and corporate confidence, the result of multiple causes, the prominent among them being the uncertainty on employment as well as the disproportionate enforcement actions.
• The signature theme ..............................

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Conclusion:

• Implementation, as always, will be key to achieving the $5-trillion goal.
• The arena for the next set of reforms and actions for sustained growth is at the state level: Agriculture, land, electricity, and even labour.
• The Budget acknowledges this. A federal approach to tackling the slowdown, in a coordinated fashion, will probably be the most effective.

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Prelims Questions:

Q.1) Tropic of Capricorn passes through which of the following countries?
1. Madagascar
2. Indonesia
3. Brazil
4. Australia

Select the correct answer using the codes given below:
(a) 1, 3 and 4 only
(b) 2 and 3 only
(c) 1 and 2 only
(d) All the above

Answer.................................

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Mains Questions:
Q.1) How best to use monetary, fiscal, trade, labour and regulatory measures, in coordination, will determine the speed at which the economy turns around? Comment.