Waiting for reforms: On the economic stimuli (The Hindu)

Mains Paper 3: Economy
Prelims level: Not much
Mains level: Highlights of the stimulus plan

Context

• Finance Minister Nirmala Sitharaman on Saturday presented the third round of stimulus measures to resuscitate the struggling economy, but once again these have largely failed to live up to the initial hype around them.

Highlights of the stimulus plan

Previous plan

• The previous two rounds of the stimulus plan, presented at press conferences held by the Minister over the last few weeks, focused primarily on reviving the automobile sector, boosting the confidence of foreign investors who were spooked by the Budget announcements in July, and improving the health of dangerously fragile state-owned banks by doing everything short of privatising them.

The present one

• This time around the focus has been on helping out the underperforming export and real estate sectors through piecemeal fiscal reforms.
• Among other things, Ms. Sitharaman announced a new tax refund scheme and greater priority sector lending for the export sector to incentivise exports.
• It is expected that the new tax breaks to the exports sector will cause a dent of up to ₹50,000 crore to the government’s revenue. Further, external commercial borrowing norms have been eased to make it easier for Indian real estate companies to tap funds from abroad, and funds worth ₹10,000 crore have also been allocated to aid the completion of affordable housing projects.

Limitations

• With lack of demand and major supply-side bottlenecks being the primary issues facing exports and real estate, it is doubtful whether the present measures will be enough to revive these flailing sectors.
• Overall, cutting across all three stimulus rounds announced till date, the government has been relying almost entirely on providing fiscal relief, in the form of tax cuts coupled with a tiny amount of government spending, to wade through what seems like a structural crisis in the economy.
• Without enacting any major supply-side reforms like land and labour reforms that can raise potential growth, it is also hard to see how greater spending can raise growth for very long.

Way forward

• This is, however, a far cry from what many expected from a government that promised radical structural reforms when it rose to power in 2014.
• The government may believe that the present slowdown, marked by five consecutive quarters of dropping growth, is merely a cyclical one.
• But given the size of its victory in two consecutive elections, the government should aim higher by trying to push through long-pending structural reforms that can raise India’s growth trajectory to the next level.

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Prelims Questions:

Q.1) Among which of the following is a subject under concurrent list?
(a) Foreign Affairs
(b) Railways
(c) Public Order
(d) Prevention of cruelty to animal

Answer: D
Mains Questions:
Q.1) The stimulus incentives hold promise, but structural reforms are nowhere on the horizon. Critically analyse the statement.