Indian economy is in doldrums. The different economic conditions prevailing are unprecedented in nature, as can be manifested from the all-time high unemployment rate and one of the lowest growth rates that the nation is experiencing. The implementation of demonetisation and subsequently, the GST in the backdrop of the rising NPAs has resulted in the slowdown of the economy. In addition, globally, the USA tariff imposition on China has negatively affected, if not worsen, the economic situation of India. Almost every sector has been affected, which has led to the decline in the consumption demand that further resulted in the decline in the investment and thus, initiated the vicious cycle of the low economic growth.
No doubt, the Government has taken multiple efforts. But what actually requires is the systematic application of the Keynesian philosophy, the philosophy that was once used to free the economy of the USA from the clutches of the 1929 great depression.
One of the principles of this philosophy is based on the fact that the fiscal expenditure rather than the fiscal prudence should be the guiding principle of any slowing economy. Fiscal expenditure will flow more money into the economy, that will increase the purchasing power of the consumers which ultimately will raise the consumer demand for the industrial goods through the phenomenon of multiplier. Controlling fiscal deficit is no doubt, one of the important parameters that the Government has to keep in balance. But it is not necessary that this management should always be in consonance with the economic needs. Rather, most of the time, it is the contrary i.e. fiscal expenditure is the saviour. For example, the construction of Hoover dam in 1931 under the policy of New Deal helped in reviving the USA economy by extending the fiscal expenditure. Also, during the economic depression of 2008, it is the policy of the fiscal extravagance under the Obama administration that rejuvenated the economy of USA.
If we take the case of India, UPA implementation of the MNREGA programme was one such programme that works on this principle. So, in the similar fashion, the present Government can go for the heavy investment in the FMCG, infrastructure as well as in the construction sectors. These sectors will improve the situation in two ways. Primarily, these sectors have huge potential for the overall economic growth of the nation as it has the potential to directly address the problem of the structural bottlenecks in the economy and secondly, these sectors, at the same time, have high potential for job creation.
Secondly, as per the Keynesian philosophy, Indian economy requires the resumption of the ‘animal spirits’ among the entrepreneurs. Without the prevalence of these animal spirits, any affirmative action on the monetary side of the economy will not result in any productive growth. Monetary policy will not have much impact under such circumstances and the management of the rate of interest policy will turn out to be redundant. Therefore, the recent cut in the repo rate by the RBI might not yield the expected result. For the resumption of the ‘animal spirts’, Government need to focus upon the demand side rather than the supply side. It is again the Keynesian philosophy that comes to the rescue of the Indian economy as it is more inclined towards the demand side rather than the supply side. Therefore, to enhance the demand side in the economy, the easy availability of the liquidity, tax cuts, etc. is some of the measures that the Government need to adopt.
Finally, the role of the export sector is also important as it forms one of the important constituents of the aggregate demand according to Keynes. What here requires is the improvement in the productivity rather the production as such. ‘Make in India’ is one such initiative that was implemented by the Government to address this problem. Domestically, the imparting of necessary skills for training the labour force is the need of the hour and internationally, there is the need to smoothen out the restrictions of the overall external barriers for India. Here, the Government is required to carefully manipulate the international forum for removal of the obstacles like GSP and the import tariff barriers etc.
No doubt, the Keynesian philosophy was mainly meant for the developed economies but at the same time, it has some room for the utility and usability for the developing world and it is exactly the room where the Indian economy has to move its elbow.
(The author is a student of PhD Agricultural Economics)