India needs capitalists. So, the government should embrace free-market principles and follow laissez-faire economics to stem the sagging growth, according to Chief Economic Adviser K V Subramanian.
But the delightful element of the Economic Survey is this: The projected 5% growth in FY20 is the lowest it can fall and GDP will rebound to a respectable 6-6.5% in FY21.
However, this won’t happen on its own, hence Subramanian suggested that Finance Minister Nirmala Sitharaman channel old-school economic thinkers Keynes, Adam Smith and our own Kautilya.
First up should be counter-cyclical measures — tax cuts, higher expenditure or both -- to spur demand. There’s little elbow room, but Subramanian believes fiscal the deficit target can be relaxed by a year or two.
The CEA’s second economic doctrine includes an out-and-out pro-business policy, encouraging wealth creators even at grassroots, eliminating government intervention, and giving a lead role to risk-taking entrepreneurs to get us the next $2-3 trillion growth.
The FM should undertake a Thatcher-style privatisation as Subramanian believes the government has no business to be in business.If Sitharaman gets the economics right, growth will take care of itself. But, it’s easier said than done.
“The forecast is clearly aspirational. Given the domestic economic situation and global headwinds, we expect GDP growth for FY21 to be similar to FY20 (5%),” said M Govinda Rao, former member of the PM’s Economic Advisory Council. He added the market situation remains precarious, with banks unwilling to lend and industry shy of investing.
“The government’s spending programme will be hamstrung by its own fiscal space even if it adopts an expansionary fiscal policy,” Rao reasoned.
India’s export potential remains unexplored and the Survey notes exporting network products alone could add over $240 billion to our economy.
In the past five years, more than Rs 3 lakh crore has been pumped into state-run banks and the Survey rightly asks how beneficial was this endless shoring up by taxpayers? The answers it found were astounding.
Every rupee we pump fetches a market value of 71 paise. But put the same money in new private banks, it’ll pay back five times more or Rs 3.70.