No policy steroids needed
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The economy is finally repairing after the policy mayhem of the last two years. The growth upturn is likely to be modest, and while inflation and the current account deficit will remain high, these are also moderating. At this juncture, it is important to allow the economy to heal by returning policymaking to some sense of stability, rather than trying to hasten the recovery with policy steroids. Clearing the backlog of project approvals, completing the unfinished existing reform agenda and putting the budget on a path of steady consolidation are daunting enough tasks. Doing just these would be sufficient to bring corporations out of the trenches and resume investing. This is not exciting, but we could all do with some steady stewardship of the economy.
Since taking office last September, Delhi's new economic management team has done a commendable job in reversing some of the policy damage of the past in a short time. But the reform blitz has done what it was supposed to do, that is, demonstrate the government's political fortitude and shrug off the label of "policy paralysis" that had come to be conjoined with it. There is no need to pick up reforms just to prove a point, given that they are political lightning rods. Rather, the government needs to do more of what it did last month, namely, pushing forward the reform agenda with less fanfare, but more effect. The compromise on the GST and the increased approvals of projects are likely to have a bigger impact on the economy than they have had on headlines.
Much has been made of reports that the government plans to cut overall spending by nearly Rs 1 trillion in the remaining months of this fiscal year. In fact, government spending had already been squeezed sharply in the last two quarters. At current run rates, spending on roads, defence and rural activities were unlikely to have come close to their budgeted allocations. So, it appears likely that the real intention of the announcement is to stop the year-end flurry of writing cheques just to meet budget targets.