Government should explore all avenues to expand capital expenditures | The Indian Express

Government should explore all avenues to expand capital expenditures | The Indian Express

Written by C Rangarajan, D K Srivastava |Updated: September 17, 2019 9:48:06 am

Srivastava is chief policy advisor EY India and former Director, Madras School of Economics.

Government should explore all avenues to expand capital expenditures

Despite the recessionary conditions in the industrialised countries, it may still be possible to pitch for a higher growth in exports. The recent announcements on boosting exports is a recognition of this.

The present slowdown is happening at a time when industrialised countries are themselves passing through a recession.

From a level of 8.1 per cent in the fourth quarter of 2017-18, quarterly GDP growth fell to 5 per cent in the first quarter of 2019-20, a fall of 3.1 percentage points. The slowdown of the Indian economy is no longer in dispute. Thankfully, the government has come out of denial mode. The critical question is: What should be done to reverse the process? Is the downturn cyclical or structural? Any downturn that happens because of a weakening of demand is cyclical. On the other hand, if there are fundamental weaknesses in the structure of the economy, these need to be removed to sustain high growth. Successful implementation of the structural reforms in 1991 pushed India’s potential growth rate to a high level. What we are witnessing in the Indian economy is a combination of the two. Several sectors such as automobiles and housing are facing a sharp weakening of demand. And there has been a significant fall in the savings and investment rate. Within household savings, the proportion of savings in financial assets has sharply declined. Apart from these, a significant growth-stifling factor is the weakness of the banking and non-bank finance sectors due to both cyclical and structural reasons.