India needs a new economic policy

Source: The post is based on the article “India needs a new economic policy” published in The Hindu on 12^th August 2023.

Syllabus: GS 3 – Indian Economy – Growth & Development

Relevance: measures needed to boost GDP growth rate

News: The National Statistical Office (NSO) has released the fourth-quarter GDP growth rate figures for 2022-23. The current NSO data, when compared to the previous year, present a more pessimistic outlook.

Further, analyzing NSO data since 2014-2015 yields three important conclusions.

What conclusions can be made after analyzing NSO data since 2014-2015?

First, the GDP growth rate has been decreasing each year since 2015-16, and it has now dropped in the fourth quarter to a level of 3.5%.

Second, this growth is similar to the Hindu Rate of Growth observed during the 1950-77 socialism era.

Third, the economic reforms taken under the leadership of P.V. Narasimha Rao and Manmohan Singh led to increase in GDP growth to 6% to 8% annually, from 1991 to 1996 and 2004 to 2014.

However, recent years have seen a worrying and ongoing drop-in GDP growth rates since 2016.

What measures can be taken to boost the growth rate of GDP?

First, abolishing personal income tax and eliminating the Goods and Services Tax (GST) are crucial steps to encourage investors and earners.

Second, the government should raise funds through indirect taxes and by printing currency notes, which can be circulated by paying wages to the employment generated in extensive public works.

Third, the government should set fixed-term savings interest at around 9% to boost middle-class purchasing power, and limit loan interest rates for small and medium industries to 6% to increase production and employment.

Fourth, India also requires a comprehensive new economic policy with clear objectives, priorities, a strategic approach to achieving goals, and a transparent resource mobilization plan.

Fifth, in India, the market system operates under rules and isn’t entirely free. However, market capitalism thrives on incentives and capital, driving innovation, factory productivity, and GDP growth. China also embraced this free market approach, despite being a totalitarian.

However, it doesn’t imply full deregulation. Government intervention is needed for safety nets, affirmative action, addressing market failure, and ensuring a level-playing field.

Must Read: India’s GDP Growth for FY2021-22 – Explained

What can be the way ahead?

Balancing public sector and deregulation, along with selling unprofitable units, boosting employment through affirmative action, and ensuring access to social security will help the poor in India.

This will also foster fairness in competition, ensures transparency, accountability, philanthropy, and corporate governance, legitimizing profitable operations that drive the market system.