How can the Budget arrest growth decline?
(Source – The Hindu, International Edition – Page No. – 10)
Topic: GS3 – Indian Economy |
Context |
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Current Economic Situation
- India’s GDP growth rate is lower than expected, despite increased government capital expenditure.
- The Economic Survey highlighted concerns about sluggish private consumption and investment.
- Major economic shocks, such as demonetization, GST implementation, and COVID-19 lockdowns, have contributed to the slowdown.
Three Phases of Post-Reform Growth
- 1991-2004: Initial phase of economic reforms with moderate growth.
- 2004-2011: High growth with poverty reduction, increased state intervention, and welfare schemes.
- 2011-2023: Economic slowdown, particularly after 2019, with weak private consumption and investment.
Reasons for High Growth (2004-2011)
- During this phase, the share of consumption of the richest 20% declined, while the bottom 80% saw an increase in consumption.
- Government policies played a key role in boosting demand among lower-income groups.
- Increased spending on social welfare programs had a strong income and employment multiplier effect.
- Schemes like NREGA ensured job creation and wage growth, particularly in rural areas.
- Investment in agriculture and rural development further strengthened the economy.
Capital vs. Revenue Expenditure |
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Government’s Response to Slowdown
- The government has primarily focused on capital expenditure to revive growth.
- Despite corporate tax cuts from 30% to 22% in 2019, private investment has not increased.
- Weak demand and low capacity utilization prevent companies from investing further.
- The expectation that capex would attract private investment has not materialized.
Proposed Solutions
- The government should increase revenue expenditure to boost demand and employment.
- Focus should shift to labour-intensive capital projects rather than capital-intensive ones.
- Fiscal expenditure as a share of GDP needs to rise to sustain economic recovery.
- A balance between capital and revenue expenditure is essential for long-term growth.
Conclusion
- The upcoming budget will indicate whether the government prioritizes market-friendly policies or social welfare.
- A policy shift toward increasing revenue spending could help reverse the economic slowdown and improve living conditions.
PYQ: Distinguish between capital budget and revenue budget. Explain the components of both these Budgets. (150 words/10m) (UPSC CSE (M) GS-3 2021) |
Practice Question: Examine the role of fiscal policy in addressing India’s economic slowdown. How can a shift towards revenue expenditure boost demand and employment? (250 Words /15 marks) |
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