What is the issue?
There is a declining trend in terms of investment and manufacturing, which calls for discussion on stimulus package.
What is a stimulus package?
- A stimulus package is a package of economic measures put together by the government to stimulate a struggling economy.
- The objective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending.
- Stimulus package argues that the impact of a recession can be lessened with increased government spending.
What are the challenges faced by Indian economy?
- Since the economy recovered from the Global Financial Crisis in 2011-12, there has been a weakness in manufacturing.
- There has been no fresh investments in the businesses for creating additional capacity.
- The inadequate demand cannot be revived by temporarily increasing public expenditure.
- Appreciating real exchange rate has weakened both the domestic market and the export market.
- This appreciation is driven by FII inflows and remittances, without any increase in productivity of the industry.
How these challenges can be tackled?
- Rupee could be depreciated to neutralise the real exchange rate appreciation.
- The government can intervene in specific sectors with multiplier effect, to create additional demand.
- Labour intensive sectors like construction, apparel, assembling etc. could boost the manufacturing sector.
Does Indian economy needs a stimulus package?
- At present, there is no external financial shock which calls for a rapid response like the 2008 crisis.
- The internal shock of demonetisation is over and the economy has been remonetised.
- Initial disruption due to implementation of GST needs to be mitigated and compliance problems addressed.
- There is no other factor which could be seen as a shock which calls for an immediate response in terms of a stimulus package.
Way forward
- Recent historical experience shows that comparative advantage is often created and nurtured by smart state action.
- The successful East Asian economies, starting with Japan, followed by South Korea, and more recently China have followed this model.
- India needs to attempt this and succeed in getting higher growth with jobs.
Source: Business standard
