Good news on the growth front

Like with all policy strategies, this one has also had its trade-offs. India’s decision to focus on monetary rather than fiscal support (other than in the case of absolutely essential items) in the aftermath of the pandemic and the government’s aggressive food price management strategy in the recent past have helped contain a prolonged inflationary spike. But a tepid private final consumption expenditure growth, negative consumer sentiment, and growth in unpaid jobs being a major driver of improvement in headline employment numbers show that the “have-nots” in the Indian economy have paid a disproportionate price for maintaining economic stability. Sure, targeted welfare transfers and political competition to deliver them have ensured that there is no humanitarian crisis or a collapse in consumption, but unless the mass demand engine starts firing again, sustained high growth is not something that can be taken for granted.

This is what leads to the most important question. A capital spending push by the central government has played a major role in supporting overall GDP growth. Some of this push has been achieved at the cost of cutting revenue expenditure. Should the government continue to follow this trajectory or shift to supporting mass consumption instead of capital spending? Doing both is unlikely to be a feasible option given the fiscal consolidation pressures facing the government. The resolution of this question will depend on politics rather than economics, more so in an election year.