Economic Slowdown and Challenges
India’s GDP growth is lower than expected, signaling economic stagnation.
Despite increased capital expenditure (capex), private consumption remains sluggish.
Private investment and consumption have not shown expected growth since 2019.
Major shocks like demonetisation, GST implementation, and COVID-19 lockdowns contributed to the slowdown.
Role of Government Spending
2004-2011 saw high growth due to fiscal policies focused on welfare and social schemes (e.g., NREGA, rural development).
State spending targeting lower-income groups generated a higher consumption demand, benefiting the bottom 80%.
A shift towards income transfers (e.g., NREGA wages) provided greater income multipliers for consumption in lower-income sectors.
Current Government Strategy and its Limitations
Government’s focus has been on capital expenditure, expecting it to drive private investment, but this has not worked as expected.
Private investment is low due to sluggish demand, with businesses not investing more when factories are not running at full capacity.
A focus solely on capital-heavy projects (e.g., infrastructure) isn't sufficient to revive the economy.
Proposed Solutions
Increase revenue expenditure, especially in social sectors like health, education, and welfare, to generate higher income for workers.
Emphasize labor-intensive capital expenditure with a higher multiplier effect.
A two-pronged approach: increase fiscal expenditure as a share of GDP and boost the share of revenue expenditure, focusing on the welfare of the working population to drive economic growth.
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