Originally posted in The Business Standard on 2 April 2024
Firstly, urgent measures must be taken to control inflation, though the government should have taken steps to control it way earlier.
A World Bank projection states that extreme poor will increase by 5 lakh and moderate poor by 8.4 lakh within FY24. These numbers are deeply troubling.
When poverty escalates, a decline in the income of the working population is inevitable. To tackle the situation, the government would need to increase the allocation of Social Safety Net programmes to support the poor. Unfortunately, our tax-GDP ratio remains stagnant, so the government will have to borrow from banks or find alternative means to increase income to finance such expenditures, placing further strain on government resources. Besides, the economy will miss out on the productivity from those marginalised by poverty and unemployment.
To address this pressing issue, the government should undertake three key interventions.
Firstly, urgent measures must be taken to control inflation, though the government should have taken steps to control it way earlier. Though late, the recent adjustments by the central bank like increased policy rate in monetary policy is a step in the right direction and it will take some time to reap the benefits. Apart from this, the government should increase its supervision to keep market management in order to control inflation.
Secondly, fiscal discipline is imperative. The government has to bring down its spending on non-essential areas, especially operating and unproductive sector expenses. Moreover, it will actually become difficult for the government to control inflation if it integrates fiscal policy and monetary policy.
Lastly, stimulating private sector investment is paramount but for that bureaucratic hurdles have to be removed. Especially, obstacles that businessmen face in setting up and running a business have to be dealt with by taking effective steps. Increasing foreign investment should also be a priority because if the government fails to bring in new investments, there will be no new employment and if employment does not increase, it will not be possible to reduce poverty.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.