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Section : Economics
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Legacy of the Past: A Complex Economic Puzzle-2
 
A long term strategic vision and collaborative approach by External Affairs Ministry and Ministry of Commerce and Industry are needed to leverage on Bharat’s foreign relations and convert it into tangible benefits in foreign trade.

By B.N.V. PARTHASARATHI




Of course, the economic activity will pickup in 2018 since the government will spend more keeping in view the ensuing elections in 2019. The expanded tax base will help the government to improve tax collections of both direct and indirect taxes in 2018-19 and it is most likely that the government will make the middle class population happy by reducing the tax rates or giving tax exemptions in its 2018-19 budget (election budget).

Next year, if the oil prices increase it will lead to increase in inflation. But this may not happen since the crude oil inventory of US is likely to increase and therefore the overall increase in crude oil prices may not significantly impact Bharat’s economy.

Bharat’s share in world exports in 2013 which was 2.07% declined to 1.65% in 2016. Considering Bharat’s GDP growth during 2013-14 to 2015-16 which was 6.6% (2013-14), 7.2% (2014-15) and 7.6% (2015-16) one has to admit Mr. Chidambaram’s statement on decline in Bharat’s exports.

In this context I would like to quote WTO Director-General Roberto Azevedo who said on 12th April, 2017, “Weak international trade growth in the last few years largely reflects continuing weakness in the global economy. Trade has the potential to strengthen global growth if the movement of goods and supply of services across borders remains largely unfettered.  However, if policymakers attempt to address job losses at home with severe restrictions on imports, trade cannot help boost growth and may even constitute a drag on the recovery.”

The WTO is forecasting that global trade will expand by 2.4% in 2017; however, as deep uncertainty about near-term economic and policy developments raise the forecast risk, this figure is placed within a range of 1.8% to 3.6%. In 2018, the WTO is forecasting trade growth between 2.1% and 4%.

Probably, weakness in the global economy and restrictions on imports by the countries who are major trade partners of Bharat could be one of the reasons for this decline in Bharat’s share in world exports (a detailed analysis needs to be made on this point by the government). A long term strategic vision and collaborative approach by External Affairs Ministry and Ministry of Commerce and Industry are needed to leverage on Bharat’s foreign relations and convert it into tangible benefits in foreign trade.

Conclusion

To counter some of the economic challenges mentioned above, if the government is able to pump in significant equity into public sector banks and the banks are able to resolve their major NPAs through the fast track mechanism, then we can expect better credit inflow into the economy(credit flow).

To boost private sector investment the government should focus on stalled and delayed mega projects to kick start the industrial and infrastructural growth. If this starts happening at least by March 2018, then we’ll have better chances of economic growth (private investment).

The capex plans of Indian Railways, the Sagar Mala project involving upgradation and expansion of the sea ports, and developing industrial corridors in the hinterland should move from the blueprints stage in board rooms to ground level activity in a year’s time to give the much needed push to the economy (government’s capital expenditure).

The year 2018 is also likely to witness stepping up of government expenditure in view of general elections. The tax sops expected in the election year is likely to improve the private consumption.

The Demonetization and GST will not give immediate short term gains but will give benefits in the long term (provided the operational issues are resolved swiftly). These measures will first lead to structural adjustment that is painful during the transition time but will give long term benefits. The penalty tax on black money identified, assessed and settled (after disputes through tribunals, which may take time) will be a bonus to the government in the long run.

Yes, the government is clueless about the causes of the slow down because the causes are not only many but have become complex, a legacy inherited from the past and therefore the government is still perplexed. However, we are a nation of people who are highly tolerant, patient and optimistic about the future. We have waited for 70 long years and would not mind waiting for a few more years for the ‘Acche Din.’

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