This fiscal’s GDP growth being projected at a four-year low of 6.5 per cent, down from 7.1 per cent last year, is not surprising given that the government shot itself in the foot with twin disasters of demonetisation and the hurried introduction of a flawed Goods and Services Tax. This economic adventurism drove the already decelerating economy down to 5.7 per cent in the September quarter. The rural economy, that runs on cash, came to a halt after demonetisation and the small and medium industries, which are the main job creators and depend significantly on cash, were literally paralysed. The irony is that finance minister Arun Jaitley, who had some part in this hapless adventurism, will have to undo the damage to the economy in the Budget he will present on February 1. This is the least that’s expected of him. He has an onerous task given that the Budget is being presented against heavy odds like rural distress, specially in agriculture, where farmers still don’t get a fair price for their produce, low private and public investment and the elections due in several states. The government had to curtail its expenditure to avoid crossing its budgeted expenditure target. But this is now threatened by the announcement that it’s likely to borrow Rs 50,000 crores for additional expenditure. The government’s revenues have taken a hit due to the price concessions it had to give under GST to quell public protests. Mr Jaitley will have to do some arithmetical acrobatics if he decides to keep the fiscal deficit target under control.
To be precise, this projected slowdown is based on data for the past seven to eight months, and analysts predict the economy will pick up to seven per cent in the second half of the fiscal, as the ill-effects of demonetisation wear off and GST’s complexities are ironed out. Private investment too is picking up. The economic affairs secretary did well to point out that investment has grown to almost twice that of last year. Mr Jaitley will have to build on positives like incentivising private investment by making it easier to do business and focusing on the revival of agriculture. While much depends on the monsoon in case of agriculture, the government needs to introduce incentives to modernise cultivation, and take steps like encouraging drip irrigation. It could learn a lot from emerging economies that have made breakthroughs like cultivating water-guzzling rice crops with minimum water. India’s own scientists have come out with several advanced methods of cultivation — like the scientist in Nagpur who created a seed variety that can be reused, as against hybrid seeds that cannot. The government hasn’t yet cashed in on the seed developed by the Indian scientist, and continues to depend on hybrid BT cotton seed which is sold by a multinational company.
