Fiscal Policy

The government chose not to adequately expand budgetary expenditure to stimulate aggregate demand due to an erroneous understanding of India’s macroeconomic challenges. It relies heavily on imagined fiscal gains from demonetisation and the introduction of the Goods and Services Tax regime. The Union Budget 2017–18 was a missed opportunity for the government and our economy.

The agricultural sector has performed worse than the other sectors over the years. The shares of non-agricultural employment and output have increased, while70% of agricultural householdscannot meet their low consumptionneeds even after diversification of sources of income. An analysis of budgetary provisions for the rural economy suggests that the government has not done enough to address some of these well-documented problems, and does not have the required vision to substantially increase rural employment opportunities.

A measure of economic policy uncertainty or EPU for India is constructed to study its impact on the economy. It is found that gross domestic product growth and fixed investment are negatively related to EPU in India. For instance, if the economic uncertainty were to decrease to the level observed in 2005, India's GDP growth would increase by 0.56%, and fixed investment growth would increase by 1.36%. Additionally, a negative correlation between the Bombay Stock Exchange index and EPU in India is observed, suggesting that increases in EPU lower expectations of future growth or increase perceived risk of listed stocks. Lastly, it is found that firm-level capital expenditure rates are lowered when EPU increases.

Looking Back at Macroeconomics 101: A Ringside View of the Global Financial Crisis from Asia in Real Time by Alok Sheel; Academic Foundation, 2015; pp 422, ₹1,295.

While Keynes was sceptical of the efficacy of monetary policy , the current mainstream macroeconomic consensus , "New" Keynesian macroeconomics , accords it primacy in the process of maintaining both price and output stability. This consensus depends on three relationships: demand is inversely dependent on the interest rate, inflation is positively related to the output gap and the central bank can control interest rates to achieve an optimum combination of price and output. This paper presents a theoretical critique of this consensus from an "old" Keynesian perspective since Keynes had raised fundamental objections to each of the three relationships .