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Friday, Aug 23, 2019

Focus on reviving demand, and stemming the slowdown

At a time when the global economy is slowing down, export opportunities will come under squeeze. This calls for policies to stimulate demand in both the short-term and medium-term.

editorials Updated: Aug 12, 2019 19:05 IST

Inflation, fiscal deficit and current account deficit are under control. But not all of this is because of the government. Benign oil prices have played a big role
Inflation, fiscal deficit and current account deficit are under control. But not all of this is because of the government. Benign oil prices have played a big role(BLOOMBERG NEWS)
         

Prime Minister Narendra Modi has given a detailed interview to The Economic Times with a focus on the economy. This is messaging from the highest level of the government amid the current economic slowdown. The PM has rightly taken credit for implementing key reforms in the economy. These include the implementation of the Goods and Services Tax (GST), bringing in a much needed Insolvency and Bankruptcy Code, and recapitalising and reforming public sector banks. All these reforms will improve rule-based compliance, reduce policy uncertainty, and undermine vested interests. For this, the government deserves credit.

The second claim is that the government has done a good job in macroeconomic management. Inflation, fiscal deficit and current account deficit are under control. But not all of this is because of the government. Benign oil prices have played a big role. A large part of the government borrowing has been shifted outside the budget. There is a controversy on the veracity of GDP numbers. Be that as it may, the PM is right in saying that there is no looming crisis on the inflation and deficit front.

This brings up the question of what has led to the current slowdown. It is here that the messaging is not clear. The PM seems to believe that supply side reforms undertaken by his government and a low-inflation, low-deficit environment is enough to take care of the current weakness in aggregate demand. The interview also suggests that in its zeal to celebrate the success in pushing key reforms, the government has not paid enough attention to their adverse impact. The slowdown in domestic demand has been gaining momentum rapidly. At a time when the global economy is slowing down, export opportunities will come under squeeze. This calls for policies to stimulate demand in both the short-term and medium-term. Mint has reported that the government is working on a stimulus package to revive the economy. Such a counter-cyclical intervention is badly needed to ensure that the promised gains of the PM’s strategic vision about the economy see the light of the day.

First Published: Aug 12, 2019 19:04 IST

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