By Ritika Chauhan
In light of their plans to visit India and Bhutan this week, Tao Zhang, the Deputy Managing Director of International Monetary Fund, and his officials released a few statements regarding the Indian economy.
IMF has said that the two historic reforms of demonetisation and implementation of GST did cause temporary disruptions in the Indian economy, slowing it down. Our economy, especially small business and the private consumption sector—being a cash-dominated economy—was bound to be affected by the withdrawal of the two most frequently used denominations. Further, GST as a concept can be regarded as a landmark reform in the economy without any doubt. It constructively contributed to the efficient movement of goods within the country, enhancing tax buoyancy, boosting GDP growth, and most importantly, creating a common national market. However, it was the implementation of this reform that contained the “complexities and glitches”.
Despite the above-mentioned restraints, IMF has also said that our economy is on the path to recovery which is evident from its expansion rate of 7.2 percent as registered in the month of October-December 2017-18. With this, India has regained its position as the world’s fastest-growing major economy. The recent expansion of our economy was attributed to effective macroeconomic policies that are focused on stability and structural reforms. With this, the growth potential of Indian economy remains positive.
Insignificant reforms in the educational, health and banking sector
IMF has also stated that other reforms in the fields of education, health, or banking are of little significance. It was suggested that measures to enhance health and education sectors, to encourage private and public investment, and to improve the efficiency of banking and financial sector should be taken if India is to increase its income levels substantially. These steps would facilitate a durable and inclusive economic growth.
The budget allocation to the education sector, for the year 2018-19, amounts to ₹85,010 crores. This amount has been criticised as it shows that the government does not have much fiscal space to spend massively on social sectors including education. The two key areas that have been focused on include ‘integration’ and ‘accountability’. Integration implies the merger of various school schemes in the near future. As far as financial accountability is concerned, a new scheme called Revitalising Infrastructure and Systems in Education or RISE was introduced such that it would be financed by a higher education financing agency (HEFA). HEFA was created to infuse fiscal discipline among government-based higher educational institutions and to allow them to raise money and pay back from their own income. According to the upcoming fiscal budget, HEFA will be expanded to become a dedicated organisation from where higher educational institutes will be borrowing.
How education and health have fared
Many believe that the government has provided a well-balanced budget that rightly focuses on the transition to digitisation. However, at the same time, there are some who believe that the sector is in need of reforms beyond the budget also. It is believed that it is now time to facilitate even greater private investment into education and set up a large number of institutions. The education sector also requires reforms to break down the demographic divide and prevent the emergence of a large number of poorly educated youth.
As far as the health sector is concerned, the government has announced an amount of ₹1200 crore dedicated to the cause with 1.5 lakh health centres to be put up. In the long run, initiatives such as National Health Protection Scheme and Ayushman Bharat Programme, referring to universal health coverage, are expected to increase healthcare expenditure and improve healthcare infrastructure. Nothing exclusive has been provided to the pharmaceutical sector in spite of the sector facing several challenges to stay competitive. Likewise, no incentives for innovative R&D were recognised.
About banking and finance
A neutral impact was observed on the banking and finance sector. A ₹2.11 lakh crore recapitalisation plan was announced. Although the centre laid down several reform measures that banks need to undertake, it remains unclear on how these will be implemented without a complete re-haul of the governance structure. The budget, against all expectations, failed to set out a clear roadmap for granting more autonomy to bank boards, consolidation within the sector, or the centre reducing its stake in PSU banks.
Dealing with protectionism
Another concern raised by the IMF officials was the protectionist approach adopted by framers of our budget. Use of contractionary tariffs, they say, is bound to reduce output, investment, and employment in the import industry providing a short-term relief to Indian industries that compete with the imports. However, such a budget also runs a risk of reducing efficiency and competition in the economy. Recalling the 1991 liberalisation reforms that benefitted India, IMF suggests that India should continue to focus its efforts on the supply-side of the economy, improving the business climate.
With the IMF reassuring its close relations with the Indians, its recommendations and suggestions are bound to influence the policymakers. It is hoped that a durable and inclusive economic growth is attained by focusing on substantial reforms in these sectors.
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