41th Lecture

BUDGET AND BEYOND: What next, for the Indian Economy,

BUDGET AND BEYOND: What next, for the Indian Economy

March 16, 2018

OBJECTIVE

To bring together CEO's, businessmen, policymakers, economists & experts from various fields and get deeper insights on the Indian economy in the near future.

CONTEXT

India's Finance Minister Arun Jaitley presented the government's budget for the fiscal year 2018/2019. The budget has allocated billions of dollars for rural infrastructure. In addition, it has also unveiled a new healthcare programme that aims to provide healthcare for 500 million poor people.

India has a long way to go before it can catch up with China, "As of 2016, India's per capita GDP is around $1,800 while that of China is around $8,123 and that of developed nations is in the $30,000 range. It will take 20 years of per capita GDP growth of 8% p.a. and, assuming a 1% growth rate in population, 9% p.a. GDP growth to reach where China is today.

The Indian economy will face renewed challenges from external developments like higher oil prices and rising interest rates which could worsen both the current account and fiscal deficits.

On the positive side , with major policy disruptions — structural changes like the goods and services tax (GST), demonetization, and an insolvency law (with last month's amendment) - and big economic governance tools (recapitalization of banks, and greater order through a transparent auctioning of natural resources, disinvestment and steady economic growth) behind it, the economy is posed to take off.

Key Challenges facing the economy

Even though the latest gross domestic product (GDP) data showed that the Indian economy is recovering from the twin policy shocks of demonetization and GST, and the pace of growth is likely to be higher in 2018 than 2017, broader economic management will not be easy. This is despite the ongoing synchronized global recovery, which will help the Indian economy during the year.

Oil price variation

Every $10 per barrel increase in oil brings down GDP by around 0.2 – 0.3 percent and worsens the CAD by about 9 -10 billion dollars.

Agricultural growth

Agricultural productivity is critical not for just feeding people but also for ensuring human capital accumulation in those who move from agriculture to other tertiary sectors.

Stock market bubble

Its generally seen around the world that when asset prices spiral, they also tend to come down quick. This is a risk that can seriously affect the economy.

Hyper globalization

We are beginning to notice that hyper globalization has caused a backlash against globalization, which has affected the growth of late convergers like India.

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