The Health of the Economy

Why in news?

• Recognizing the serious crisis in the economy, Economic Advisory Council to the PM has been reconstituted.

What does statistics say?

• The Q1 GDP growth numbers at 5.7% was at its lowest in 3 years.
• Rural demand fell due to 2 continuous poor monsoon years.
• Debt-strapped industry being unable to undertake investment is also another factor.
• Both the rupee and the sensex have fallen off recent highs.

How did this crisis come up?

• Demonetisation ruptured the transactional rhythm of the economy, particularly in the unorganised sector.
• Teething issues in GST, chiefly delays in realisation of input credit, have further disrupted cash flows, hurting exporters.
• Inflation is currently around 3.4%.
• Poor implementation of GST, along with rising fuel prices, could push retail inflation ever closer to the 4% target of the RBI.

How does the future look?

• As kharif output has been largely hit by irregular rain, rural demand may not provide the economic stimulus anytime soon.
• With tax revenues trailing below Budget expectations, there’s little room for a fiscal stimulus.
• Therefore, the Centre should continue tapping into overseas soft credit to fund big infrastructure projects.
• The ‘Economic Advisory Council’ should focus on quality expenditure, which can crowd in private investment.

Source: Business Line