The year gone by was difficult for the Indian economy. GDP has been decelerating for six consecutive quarters. The Periodic Labour Force Survey (PLFS) showed unemployment rate in 2017-18 to be at 6.1%, the highest in four and-a-half decades. Leaked findings of the National Statistical Office’s (NSO) Consumption Expenditure Survey, which was later junked by the government, showed that average consumption fell in real terms between 2011-12 and 2017-18.
The government must then have a clear objective in 2020 — boosting economic growth. Policies should be specifically focused on generating mass demand and employment. Fiscal policy has to play an important role in achieving this. Considerations of adhering to fiscal deficit targets should not be allowed to distract economic policy from these concerns. Unless economic activity picks up, fiscal consolidation will anyway be an uphill task. Even as a major stimulus is attempted, it is crucial that the government works towards revitalising economic sentiment, which is essential to revive investment and spending. This will require an honest engagement with the problems in the economy, including confronting inconvenient data.
The dip in economic indicators was clear in the run-up to the 2019 polls, but it did not create a political backlash against the government. In fact, Indian voters delivered an even bigger mandate to the Bharatiya Janata Party (BJP). But in subsequent state polls, the party suffered setbacks. India’s political economy thus appears to have taken a curious turn where voters are more willing to punish the BJP’s state-level governments than the one at the Centre. It is tempting to attribute this distinction to personality or caste-based factors. However, there could also be an economic lesson here. In a diverse economy, perhaps it is easier to articulate and pinpoint economic grievances and solutions at the local level than for the entire economy. Going forward in 2020, while pursuing desirable macro-targets at the national level, such as a $5trillion economy by 2024, India’s economic policy should be more sensitive to regional and sectoral diversities.