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Election Results: New government to face these 'Economic' challenges
With so many conditions not favourable, it is for the new government to do heavy lifting if they want to start their new term with a bang. The country needs something of a fiscal stimulus. Who will pay the bill for the stimulus that will test its nerves?
New Delhi: Close to two quarters everything has been on a standstill as country passes through the five-yearly ritual of general elections. With results out the country can start focusing on getting the growth back. Growth needs spending – both by consumers and investors. For past many years private companies have not been too keen to invest largely due to already existing capacities. It is the government that has been the major investor and driver of growth in the economy.
There are limits to the increase in spending that government can manage year after year. This is more so when political situation demands more and more subsidies and support to various interest groups. Consumption, which was the other leg on which the growth of past years was standing, has also slowed as the election season has peaked. Growth in sales on durable goods like cars has fallen by almost 16 percent across different segments as has sales of consumables like soaps and shampoos. Some surveys indicate it is due to demand contraction in rural areas.
At this time of the year, to get the growth back everyone is looking at gods to deliver good monsoon so that some consumer demand in rural areas revive. Other place to look for growth drivers is increase in rate of government spending. Some spending slowdown in recent months due to delays in decision making during to elections can be reversed. While money from the government will start flowing it will not pour due to fiscal pressures already high. Some stimulus from Reserve Bank of India in terms of cheaper credit can help to an extent.
However, room with RBI is limited and lower policy rates did not automatically lead to lower lending rates. Transmission of rate cuts is impeded by mountain of bad loans in banking system and Non-banking Finance Companies facing its own challenge of raising funds after the biggest of them all IL&FS staring at deep asset-liability mismatch. Between US-China trade wars any strategy to ride on exports for growth and investment going would not be possible.
Another area of concern is rising crude oil prices in the range of $ 73 a barrel and revenue collection which has taken a hit.
With so many conditions not favourable, it is for the new government to do heavy lifting if they want to start their new term with a bang. The country needs something of a fiscal stimulus. Who will pay the bill for the stimulus that will test its nerves?....
- Gaurav Dwivedi
(Author is an ex journalist and writes on socio-political economic scenario)