As per the current economic scenario in India it is evident that the government has been unable to maintain economic harmony, rather it has made a serious damage by eradicating people’s spending power. The manufacturing output is at its low and import-export are struggling at a two year low. It is evident with the economic indicators that businesses are at its all time low and businessmen have lost confidence in bringing the money out in the market again.
As per the GDP formula now we can clearly see that consumption is at its all time low as residents of India are not having enough spending power in their hands and imports and exports figures are already bleeding. The best thing to be taken care by the government for reviving GDP is Government spending and Investment.
Government spending requires additional capital in the economy. This additional capital can be taken care by either printing, new currency, increasing the tax revenue or increasing foreign capital in the form of investment.
However, all these mechanisms have drawbacks which will have to be beared by the residents of the country. By printing more currency notes the liquidity in the market will increase which will cause inflation figures rise which might backfire the long term goals of the country. Secondly, if the tax bracket is increased it will pressurize the tax payers which will lead to negative sentiments for the economy. Lastly, if the foreign investments are increased it will lead to more debt on the country which will have to be beared by the coming generations.
Also, the timing of the stimulus package by the government is of utmost importance in the present condition. Indian economy is trying to settle off the after shocks of demonetization and GST implication and an early stimulus is going to act as another quake. Government spending on infrastructure projects is at such crucial position that it might increase the liquidity in the market, but may not be able to induce the spending psychology of the people of India.
Thus, additional stimulus if induced in the economy at this stage might only increase the fiscal deficit of the country and not have a meaningful impact in uplifting the Indian economic condition. The higher fiscal deficit will lead to higher bond yields in the long run and the condition of the Indian economy will become worst than the present condition.
As per the present condition it is required that the government of India lets the dust settle first and then after reviewing the conditions should act thereof. An absurd step like a stimulus programme will only deteriorate the present condition and have a long term negative impact on the economy. This will also degrade the international rating of the country which might affect the international investments in India. The overall credit rating might also get declined, which will be hard to compensate even in the long run.
