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Salt to the wound


Indian Express

Context

Government could have undone the damage of demonetisation through the budget. The opportunity has been missed in deference to the whims of global finance

 In the first few paragraphs, author has conveyed the sentiment that the Union Budget could have partially undone the damage inflicted by demonetization but it has failed to do so

Damage by demonetization

Author states the damage that has been done by demonetization move of the government

  • Contraction in aggregate demand
  • Slowdown of overall growth
  • Impact on the informal sector

Contractionary budget: An opportunity lost

Author states that by boosting demand in the economy through larger government expenditure, budget could have provided some relief but instead it took following step,

  • Rate of Growth halved: The rate of growth of total government expenditure has been halved, from about 12 per cent between 2015-16 and 2016-17 (RE) to just 6 per cent b/w 2016-17 (RE) to 2017-18 (BE). As a proportion of GDP, total expenditure is slated to fall between 2016-17 and 2017-18.

 Author’s contention

Union Budget could have given a spur to the economy by utilizing the deposits lying idle with the banks, as credit demand from borrowers has not picked up. Government should have issued fresh securities to the banks and used the money for spending but it would have contributed to the fiscal deficit (as govt needs to pay interest for the money borrowed from the banks in lieu of securities) and hence government didn’t do so

  • Donald Trump is busy imposing trade restrictions, and hence snatching employment through a “beggar-my-neighbour” policy from other countries, including India.
  • Countering Trump: Our country should be countering Trump’s protectionism and preventing job losses by imposing trade restrictions of its own, and in the shadow of such restrictions, increasing the domestic market through larger fiscal deficits, backed by requisite capital controls

 

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