WION Edit: Summarising the state of Indian economy

Delhi Jan 15, 2020, 03.52 PM(IST) Written By: WION

Economy Photograph:( Reuters )

Story highlights

Indian economy is consumption-driven and the government's first priority must be finding ways to revive consumption.

In little over a fortnight, Finance Minister Nirmala Sitharaman will present the Union Budget in India.

This is one of the most closely followed budgets in Indian history because of the precarious situation that the economy finds itself in.

Former Chief Economic Advisor Arvind Subramanian called it 'India's great slowdown'. Former RBI governor Raghuram Rajan says '5 per cent growth simply doesn't cut it.'

Economists are divided in their prescriptions for recovery. So what can and should the government do?

On the WION edit, we will compile some of the solutions that are being discussed. 

India is not an export-driven economy, it's a consumption-driven economy and the government's first priority must be finding ways to revive consumption.

The government must begin with the rural economy which is in deep distress. Over half of India's population depends on the rural economy. 

If the health of agriculture is crippled, the Indian economy will limp. Average monthly household income in rural India remains woefully low and this is because of disparity between a farmer's income and produce and the government needs to find ways to fix this.

Second, the problem of bad loans needs to be fixed. The whole picture and extent are still not clear and that is frankly, scary.

Third, rate cuts are a good tool to facilitate spending and boost demand, but passing on the benefits are equally important.

GST rates can be rationalised and lowered, in some cases, to revive demand.

But the real problem is the fiscal problem, there is no space for a fiscal stimulus and that is a big worry.

Fourth, India cannot allow dodgy assets to destabilise banks. For very long, India's policymakers had a simple solution for banks with poor performance - to merge the weak banks with strong state-run banks.

In tricky global weather and a weak consumption regime, solving the jobs crisis will be next to impossible.

The government must act quickly. If the levers of demand and consumption are allowed to rust, then the path to recovery might be much longer. Moreover, fluctuation in oil prices will push inflation.

Budget incentives to boost consumption will go a long way in restoring confidence in the Indian economy.

(Disclaimer: WION Edit is the channel's take on the big events of the world)