THE GIST of Editorial for UPSC Exams : 31 JANUARY 2019 (Why government must spend more (The Indian Express)

Why government must spend more (The Indian Express)

Mains Paper 4: Governance
Prelims level: Economics parameters
Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Context

•  One does not need to go too far back in history to recollect the precarious situation of the Indian economy.
•  When the current government took over in 2014, the declared fiscal deficit was at 4.5 per cent while the actual was estimated to be in the range of 5.5 per cent.
•  The gap between off balance-sheet expenses like oil bonds (issued to the tune of Rs 1,42,202 crore and not reflected in government accounts), withheld income tax refunds and rolled over, to the next year.
•  It was creative accounting at its best.
•  India as the “fragile five” countries being the weakest links in the global economy.
•  The Modi government went about managing its financial affairs in a very prudent manner.
•  Measures like demonetisation and the Goods and Services Tax (GST).

Economics parameters

•  Macroeconomic parameters like inflation and fiscal deficit have been contained, the current account deficit is manageable and foreign exchange reserves and GDP growth rates are inching higher.
•  In doing so, the government has not sacrificed any essential expenditure.
•  As per the publicly available data, the 2014-15 to 2018-19 period has seen the best combination of GDP growth rate (high) and inflation (low) than any other government in the history of independent India.
•  We are not only one of the fastest-growing economy, but also the sixth-largest economy in the world.
•  PwC’s annual Global Economy Watch report projects India’s real GDP growth in 2019-20 at 7.6 per cent and accordingly, India is likely to surpass UK in 2019 rankings of world’s largest economies and occupy the fifth position.
•  At the centre of all initiatives is the ordinary citizen of India and the goal is to ameliorate her condition of living.
•  The target is to achieve a higher level of GDP growth and to make it as wide and participative as possible.
•  Currently, agriculture and allied sectors are facing some challenges due to lack of sufficient demand for their output.
•  The Micro, Small and Medium Enterprises (MSMEs) sector facing headwinds due to lack of liquidity in the financial system and lack of demand.
•  The economy will grow only when there is sufficient demand.
•  Government expenditure has increased tremendously in the last five years and sectors like steel and cement have benefited immensely.

Way forward

•  However, private consumption and investment demands need to increase further.
•  The government might consider measures like interest subvention on agricultural loans,
  direct cash transfer to farmers based on their landholdings, relaxation in income tax slabs for the lower-middle and the middle class andinjection of liquidity in the financial sector to boost credit availability.
•  These measures might put some upward pressure on inflation which might not be such a bad thing.
•  Cash transfers to farmers are constrained by the lack of updated land records with the state governments and a way around it must be found.
•  Such a transfer will boost demand for agricultural and non-agricultural products in the rural areas and help the agriculture and MSME sectors.
•  Governments and economies exist for the people and not the other way round.

Online Coaching for UPSC PRE Exam

General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) What is Goblin, recently in news?
A. A soil bacterium that give the plant the property of pest-resistance to a wide variety of pests.
B. New method of adopting spatial and temporal crop sequencing/crop rotations.
C. India’s indigenous anti-missile programme.
D. A newly discovered dwarf planet

Answer: D

Mains Questions:
Q.1) Why Indian government needs to spend more towards economic policy?