Category: Growth & employment

Budget 2023 targets inclusive growth

The Finance Minister has given a push to growth through a judicious blend of encouraging investment and consumption Guided by the overriding objective of laying the foundation of putting India on a rapid and sustainable growth trajectory, for three years in a row, the Narendra Modi government has presented an investment-led Budget. Most of the budgetary allocations are going into building infrastructure, while the government has taken measures to promote investment by the private sector. The Budget for 2023-24 continues with this overarching strategy. In her maiden Budget for 2019-20, Finance Minister Nirmala Sitharaman had laid a roadmap for catapulting the Indian economy to $5 trillion by 2024-25. In sync with this target, she had projected an investment requirement of...
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Bringing back OPS may be catastrophic

The new pension scheme or NPS has addressed the inequity issue by providing a platform to the private sector Even as the finances of states were beginning to look better as reflected in decline in the ratio of state government debt to GDP from 31.2 per cent during 2021-22 to 29.5 per cent during 2022-23—as per the budgetary estimate (BE) —the political brass in different states have made populist announcements which don’t augur well for the future. One of these relates to the revival of the old pension scheme (OPS). Making a statement in the Lok Sabha, the Minister of State for Finance Bhagwat Kishanrao Karad said, “The state governments of Rajasthan, Chhattisgarh, and Jharkhand have informed the Central government...
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RBI should pause rate hikes, boost growth

Since inflation is driven primarily by supply-side factors, the RBI should avoid too many interest rate hikes In 2016, the Government had put in place an institutionalised framework, the Monetary Policy Committee (MPC), to formulate monetary policy and determine the key interest rates. It mandated the Reserve Bank of India (RBI) to fix rates, especially the repo rate or RR (interest rate at which the RBI lends to banks), in such a manner as to maintain inflation—as represented by the consumer price index (CPI)—within the target range of 4 per cent (+/- 2 per cent) for a five-year period ending March 31, 2021 (the mandate has now been extended for further five years ending March 31, 2026). In the case...
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Eschew greed, boost demand

Irrespective of their size or industry sector, all businesses are structured to result in concentration of income in the hands of their owners Even as industries and businesses — both domestic and foreign-owned large corporations — expect the government to formulate policies and take fiscal measures to stimulate aggregate demand to put the Indian economy on an ‘accelerated’ and ‘sustained’ growth trajectory. A key question that needs serious introspection is: What are they doing in pursuit of this overarching goal? An analysis of the financials of India’s largest companies — those comprising the BSE 500 index — with focus on revenue, profits and dividend payouts, over the past five financial years (FY) gives us some clues. The profits of corporations...
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Businesses can’t have the cake and eat it too

Record corporate profits, dividend payouts point out to their unwillingness to help boost economy’s strengths Even as the industries and businesses (large corporations, domestic and foreign-owned included) expect the government to formulate policies and take fiscal measures to stimulate aggregate demand to put the Indian economy on an ‘accelerated and sustained’ growth trajectory, it’s worth asking what exactly they themselves are doing in pursuit of this overarching goal? An analysis of the financials of India’s largest companies—those comprising the BSE 500 index (the index covers every sector; besides it includes public sector undertakings (PSUs), as well as overseas subsidiaries of Indian-owned private-sector businesses, hence captures a broad trend)—shows focus on revenue, profits and dividend payouts, which represent a slice of...
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RBI hikes repo rate but more is needed

While there is no guarantee that the RR hike will tame inflation, we can’t rule out the risks to growth Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 per cent to 4.4 per cent. He also increased the cash reserve ratio (percentage of a bank’s total...
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RBI changes gear, finally

Normally, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) conducts a review once in every two months based on which the RBI makes policy announcements at the beginning of each of the following months viz. February, April, June, August, October, December. Deviating from this practice, in early May, 2022, Governor Shaktikanta Das announced changes in the important monetary policy instruments. Das increased the policy repo rate (interest rate at which the RBI lends to banks) or RR from 4 percent to 4.4 percent. He also increased the cash reserve ratio (percentage of a bank’s total deposits that it needs to maintain with the RBI as liquid cash; the bank does not earn interest on this liquid...
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2022-23 budget – avoid a debt trap

The Union Budget for 2022-23 provides for capital expenditure of Rs 750,000 crore which is a jump of over 35 percent from the budget estimate (BE) of Rs 554,000 crore for 2021-22 (revised estimate (RE) for the current year is Rs 604,000 crore which is more or less close to the BE when we exclude Rs 50,000 crore given to Air India Asset Holding Company Limited AIAHCL where the debt of now divested Air India resides). Considering that the BE for current year was 26 percent higher than the RE of Rs 439,000 crore during 2020-21, this sounds impressive. However, when seen in juxtaposition with over Rs 100,00,000 crore investment needed to build infrastructure over five years – for catapulting...
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Income inequalities – tackle the root cause

According to the Oxfam report, “Inequality Kills’’ released ahead of the World Economic Forum’s (WEF) Davos Agenda early this month, during 2021, the collective wealth of India’s 100 richest people hit a record high of Rs 5700,000 crore (US$ 775 billion) while the number of Indian billionaires grew from 102 to 142. During the pandemic, the wealth of these billionaires increased from Rs 2300,000 crore (US$ 313 billion) in March 2020 to Rs 5300,000 crore (US$ 719 billion) in November 30, 2021. At the same time, during 2021, the income of 84 percent of households declined even as the share of bottom 50 percent of the population in national wealth was a mere 6 percent. More than 46 million Indians...
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Shun ‘accommodative’ policy stance

In its bi-monthly Monetary Policy Committee’s (MPC) review announced by Governor Shaktikanta Das on December 8, 2021, the Reserve Bank of India (RBI) has kept the policy repo rate or RR ( interest rate at which it lends money to banks) unchanged at 4 percent. It has also kept reverse repo rate or RRR (interest rate on the surplus cash kept by the banks with it) unchanged at 3.35 percent. Besides, it has  retained an ‘accommodative’ policy stance as long as necessary. This is the ninth consecutive time that both the policy rates have remained unchanged since August 2020. Justifying the decision, Das observed “given the slack in the economy and the ongoing catching-up of activity, especially of private consumption,...
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