Table of Contents
Why we are studying this?
- Faced with a historic contraction in the country’s GDP amid a tense standoff with a wealthier nuclear-armed neighbour,
- India’s finance minister, Nirmala Sitharaman has promised a budget like no other this year.
- To stand true to her words, Sitharaman will need to address five key challenges confronting the Indian economy today.
- Most of them predate the covid-19 pandemic but have gained urgency after the economic devastation wreaked by the pandemic-induced lockdown.
Getting domestic demand back on track
- India’s ‘consumption story’ had begun losing its sheen even before the pandemic-induced lockdown led to a collapse in spending.
Creating decent jobs
- The sustainability of the consumption revival in the coming years will ultimately hinge on India’s ability to create decent well-paying jobs.
- Over the past few years, the ranks of the salaried class had swelled, even if at a slow pace.
- The pandemic has however led to a sharp decline in the ranks of the salaried class.
Reviving animal spirits
- Job-creation at scale will require the country’s entrepreneurs to step up investments.
- India’s investment cycle has been moribund for several years but the past year has been an absolute washout.
Ending the credit drought
- In recent years, banks have had some success in bringing down the share of toxic assets on their books but the pandemic could undo those gains.
- Stress test results published by the Reserve Bank of India (RBI) in its latest financial stability report suggest that,
- The share of bad loans could shoot up to 14% by September 2021, nearly double what it was in September 2020.
Raising spending without raising inflation
- Given that the three key engines of the economy – consumption, investments, and exports – are malfunctioning today,
- The only game in town is the government, which will need to steer the economy till the other engines pick up pace.
- But higher spending must largely be directed to fund capex not the revenue expenditure.
Q) Which one of the following is not the most likely measure the Govt/RBI takes to stop the slide of Indian rupee?
- Curbing imports of non-essential goods
- Issue rupee-denominated Masala Bonds.
- Easing the external commercial borrowing
- Following an expansionary monetary policy
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