Air of optimism
The International Monetary Fund’s projection that the Indian economy will stage a strong rebound to grow at 11.5% in 2021 comes as music to Finance Ministry’s ears ahead of the Budget presentation. If this prediction comes true, India will be the only major economy of the world to register a double-digit growth, a reflection of its strong fundamentals and resilience to withstand the debilitating impact of the pandemic. Earlier, the forecast of the IMF was 8.8%. The upward revision demonstrates stronger-than-expected recovery following easing of lockdown-related restrictions across the country. This is significant in the light of economy suffering a contraction of 8% in 2020. The growth in other areas like foreign policy investment, foreign direct investments and corporate bond market inflows indicates a strong investor faith in India’s economic resilience. Besides, upward revisions by rating agencies in GDP forecast also raise hopes of a quick rebound. The Reserve Bank of India (RBI) too predicted a positive growth outlook in the second half of 2021-22. In its latest World Economic Outlook Update, the IMF predicted that China would grow 8.1%, followed by Spain 5.9% and France 5.5%. While the projections by the multilateral body bring cheers to the policymakers, there is no room for complacency as major steps are needed to boost consumption and job creation. While one can take comfort in IMF’s praise for India’s “very decisive” steps to deal with the pandemic and its economic consequences, there are several challenges that need to be overcome. The projected growth doesn’t reveal the distress of the informal sector.
Increasing infrastructure spending, providing relief to small and medium businesses and boosting consumption and private investments are the key challenges facing Finance Minister Nirmala Sitharaman as she prepares to present her third Budget. With private investment and consumption being low, the government must step in and spend more without creating excess inflation. Though India has a faster pace of recovery from the pandemic-induced distress, it still has a long way to go to reach the pre-pandemic level. It needs to grow in double digits in order to achieve the target of becoming a $5-trillion economy. A big push for reforms and liberalisation in trade, labour and land laws is the way forward. With the vaccination coverage gradually increasing, workers will now start to return to their workplaces. As a result, it is the right time for the demand stimulus to work and front-loading expenditure could be enough to bring the economy back to pre-Covid levels. The Centre must capitalise on the gains made by some sectors to bolster the economy. Creation of jobs must be high on the agenda.
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