RED LIGHTS BLINKING, EXISTENTIAL CRISIS

By Ruma Dubey

It is very reassuring to know that the Govt has finally woken up from its state of denial and accepted the fact that the Indian economy is slowing down and needs urgent help. Thanks to the oncoming 2019 elections or the slowly growing disgruntlement in media, especially the foreign media, the wake call was finally heard!

The fiscal deficit is in shambles – 90% of the fiscal deficit target has already been exhausted by the Govt in the first four months and for full year, the target is 3.2% of GDP.

States have diverted all their money to farm loan waivers, leaving all capital expenditure in serious jeopardy. Thus the state and center, both have a problem at hand regarding the deficit and economists place the combined deficit at around 7%. Mind you, this is even when oil was hovering at lower levels of $40/barrel. Thus if deficit has burgeoned despite lower oil, surely we have a massive problem at hand.

There is news doing that rounds that the Govt is considering announcing a Rs.50,000 crore stimulus package. This means that the Govt is planning to spend Rs.50,000 crore to revive the sagging economy. But then, the ‘side-effect’ of this is would be a whammy on fiscal deficit, which could rise to 3.7% from targeted 3.2% of GDP.

There is no denying the fact that what we are seeing today is the effect of demonetization and implementation of GST – both done so in a very shoddy manner.

The rumour mill has it that the stimulus package would be directed towards bank recapitalisations, rural jobs programme and rural housing. No surprise there, isn’t it?  

But the warning here – if the Govt goes for quick fixes it could undo all the good work it has done so ar. In the past too, during the 2008 crisis, the UPA govt announced stimulus packages and that is what led to the spiraling inflation, burgeoning fiscal deficit and an economy which was at a complete standstill.

The BJP has at least got inflation under control, ushered in some very good reforms and kept the sentiments buoyant. The risk now though could be putting in quandary all the good work that it has done so far.

The demon of demonetization and disruption caused by GST has dealt a body blow to the Indian economy. We do not know whether the black money was cleansed but the disruption caused has been more deadly.

Let’s see what the Govt does in these days ahead – it has to do something, that’s for sure; at least we know that the Govt will do something.