Recent economic data suggest that government has its work cut out. Data for external sector, current account and trade deficits, signal that employment intensive sectors such as garments are under pressure. This should worry the government as providing jobs for the millions entering the workforce each year is the most formidable economic challenge we face. The immediate focus of government should be to boost employment intensive sectors and exports.
In October, exports contracted for the first time in 14 months. This came on the heels of a current account deficit in April-June quarter of $14.3 billion, or 2.4% of GDP, a four-year high. The data is a symptom of the disruption experienced by India’s smaller manufacturers, many of whom are also exporters. Among factors which have hurt them is the design of GST which raised their cost of doing business. The GST Council has responded to their problems. But to impart greater certainty in the economic environment, there have to be more changes in tax architecture. Governments need to keep in mind that the combined impact of these problems has resulted in an economic slowdown for over a year.
The current financial year is not expected to see an improvement. For instance, economic think tank NCAER has forecast GDP growth this year will slow down to 6.2%. An economic slowdown will act as a drag on tax collections. Therefore, NDA needs to take the lead in steering the GST Council to a light touch approach to GST. Alongside it must boost markets and step up the pace of supply side reform, taking bold steps in such areas as land, labour, education and disinvestments. The government needs to exert itself to the utmost to unleash dynamism and animal spirits in the economy, particularly in those sectors that generate jobs and exports.