IASbhai Daily Editorial Hunt | 9th May 2020

You don’t have to be great to start, but you have to start to be great.– Zig Ziglar

Dear Aspirants
IASbhai Editorial Hunt is an initiative to dilute major Editorials of leading Newspapers in India which are most relevant to UPSC preparation –‘THE HINDU, LIVEMINT , INDIAN EXPRESS’ and help millions of readers who find difficulty in answer writing and making notes everyday. Here we choose two editorials on daily basis and analyse them with respect to UPSC MAINS 2020.

EDITORIAL HUNT 75:“Slower growth and a tighter fiscal“

SOURCES: THE HINDU EDITORIAL/EDITORIALS FOR UPSC CSE MAINS 2020

C. Rangarajan & D.K. Srivastava

C. Rangarajan is former Chairman, Prime Minister’s Economic Advisory Council and Former Governor, Reserve Bank of India. D.K. Srivastava is Chief Policy Advisor, EY India and former Director, Madras School of Economics.

HEADLINES:

Slower growth and a tighter fiscal

CENTRAL THEME:

India slid into the pandemic crisis in the backdrop of economic downslide; fiscal stimulus has to be structured

SYLLABUS COVERED: GS 3:Economy : Fiscal deficit

MAINS QUESTION:

The impact of COVID-19 will be debilitating for the global as well as the Indian economies. Give a rough figure of growth prospectus of the next fiscal year -(GS 3)

LEARNING:

GVA predictions from various institutions.
Growth Projections
What are the liabilities of the Government
Judicious allocation of resources .

INTRODUCTION:

Various institutions have assessed India’s growth prospects for 2020-21 ranging from:
0.8% (Fitch) to
4.0% (Asian Development Bank).
The International Monetary Fund (IMF) at 1.9%, China’s at 1.2%, and the global growth at (-) 3.0%.

The actual growth outcome for India would depend on: the speed at which the economy is opened up; the time it takes to contain the spread of virus, and, the government’s policy support.

BODY:

GROWTH PROSPECTS :

India slid into the novel coronavirus crisis on the back of a persistent economic downslide.
There was a sustained fall in the saving and investment rates with unutilised capacity in the industrial sector.
In 2019-20, there was a contraction in the Centre’s gross tax revenues in the first 11 months during April 2019 to February 2020, at (-) 0.8%.
In 2019-20,India may show GVA growth of about 4.4%.

GVA EFFECT:

GVA is divided into eight broad sectors.
Although all sectors have been disrupted, some may be affected less than the others.

THE GROUP ANALYSIS :

In group A, we consider two sectors that have suffered only limited disruption — namely agriculture and allied sectors, and public administration, defence and other services.
Next, we consider the group that is likely to suffer maximum disruption (Group D).
This includes, trade, hotels, restaurants, travel and tourism under the broad group of “Trade, Hotels, Transport, Storage and Communications”.
Group B comprises four sectors which may suffer average disruption showing 50% of 2019-20 growth performance.
These sectors are mining and quarrying, electricity, gas, water supply and other utility services, construction, and financial, real estate and professional services.
In the last group (Group C), we place manufacturing which has suffered significant growth erosion in 2019-20.
In the first quarter, GVA growth will be negative.

CALIBRATING POLICY SUPPORT

MONETARY INTERVENTIONS :

Monetary policy initiatives undertaken so far include a reduction in the repo rate to 4.4%, the reverse repo rate to 3.75%, and cash reserve ratio to 3%.

The Reserve Bank of India has also opened several special financing facilities.
These actions will have a positive impact on output only after the lockdown is lifted.
These measures need to be supplemented by an appropriate fiscal stimulus.

THE CASH CRUNCH :

Although industry has been clamouring for a large fiscal stimulus, cash-constrained central and State governments have taken expenditure reducing measures by announcing a freezing of enhancements of dearness allowance and dearness relief.

This may result in savings of ₹37,000 crore for the Centre and about ₹82,000 crore for the States, together amounting to 0.6% of GDP.
There is also a talk of substantially reducing non-salary defence expenditure.
With lower petroleum prices, fertilizer and petroleum subsidies may be reduced.

ON FISCAL DEFICIT

FISCAL STIMULUS CAN BE OF THREE TYPES:

(a)relief expenditure for protecting the poor and the marginalised;

(b) demand-supporting expenditure for increasing personal disposable incomes or government’s purchases of goods and services,

(c)including expanded health-care expenditure imposed by the novel coronavirus, and, bailouts for industry and financial institutions.

The Centre had earlier announced a relief package of ₹1.7-lakh crore of which the additionality was only ₹65,000 crore.
The Centre’s budgeted fiscal deficit of 3.5% of GDP may have to be enhanced substantially to make up for the shortfall in budgeted revenues.
Thus, the Centre’s fiscal deficit may increase to 6.0% of GDP.

IASbhai Windup:

Expenditure on construction of hospitals, roads and other infrastructure and purchase of health-related equipment and medicines require prioritisation.

These expenditures will have high multiplier effects.
This gap may be bridged by enhancing net capital inflows including borrowing from abroad and by monetising some part of the Centre’s deficit.
Monetisation of debt can at best be a one-time effort.