Mains Marathon

Approach

• Introduce by stating the meaning of Macroeconomic stability
• Mention variables of Macroeconomic stability
• Discuss the reforms taken by the Government of India
• Conclude by summarizing the answer

Answer

Macroeconomic Stability describes a national economy that has minimized vulnerability to external shocks, which in turn increases its prospects for sustained growth. Macroeconomic stability is a necessary, but insufficient requirement for growth. Exposure to currency fluctuations, large debt burdens, and unmanaged inflation can cause economic crises and collapse in GDP.

Macroeconomic stability is measured by five variables:

• Low and stable inflation indicates healthy demand in the marketplace; however, high or unstable inflation threaten growth.
• Low long-term interest rates reflect stable future inflation expectations.
• Low national debt relative to GDP indicates that the government will have the flexibility to use its tax revenue to address domestic needs instead of paying foreign creditors.
• Low deficits prevent growth in the national debt.
• Currency stability allows importers and exporters to develop long-term growth strategies and in reduces investors' needs to manage exchange-rate risk.

Reforms taken by Government of India to bring macroeconomic stability of the country:

As the world economy recovered in 2021, it is faced with serious supply-side constraints ranging from delivery delays, container shortages and semiconductor chip shortages. Even the sharp increase in capital spending by the Government can be seen as both demand and supply response as it creates infrastructure capacity for future growth.

India’s economic response has been an emphasis on supply-side reforms rather than a total reliance on demand management.

There are two common themes in India’s supply-side strategy:

(i) Reforms that improve flexibility and innovation in order to deal with the long-term unpredictability of the post-Covid world.

(ii) Reforms aimed at improving the resilience of the Indian economy. These range from climate/environment related policies; social infrastructure such as public provision of tap water, toilets, basic housing, insurance for the poor, and so on; support for key industries under Atmanirbhar Bharat.

Industry:

Production Linked Incentive Scheme approved for 13 sectors including Automobiles and auto components, pharmaceuticals drugs, Specialty steel, etc to boost domestic manufacturing of advanced technology products and attract investments.

Retrospective tax repealed to promote tax certainty and foreign investment.

Telecom

Rationalization of Adjusted Gross Revenue: Non-telecom revenue will be excluded from the definition of Adjusted Gross Revenue.

Huge reduction in Bank Guarantee requirements against License Fee and other similar levies. For auctions held henceforth, no Bank Guarantees will be required to secure instalment payments.

Labour Reforms: Central Government notified four labour codes.

Defence: FDI enhanced in Defence sector up to 74 per cent through the automatic route and up to 100 per cent by government route.

Disinvestment: National Monetisation Pipeline Aggregate monetisation potential of ` 6 lakh crore through core assets of the Central Government over a four-year period from 2021-22 to 2024-25.

Space & Geospatial sector: Liberalizing the traditional Satellite Communication and Remote Sensing sectors for increased private sector participation.

Banking: Increase in deposit insurance from ` 1 lakh to ` 5 lakh per depositor per bank. This led to 98.1 per cent of the total number of accounts being fully protected

Introduced interim payments: Interim payment will be made by Deposit Insurance and Credit Guarantee Corporation (DICGC) to depositors of those banks for whom any restrictions/ moratorium has been imposed by RBI.

Micro Small & Medium Enterprises (MSMEs): Removal of distinction between manufacturing and service MSMEs. Upward revised definition of MSMEs in industry and service sector.

These supply-side reforms such as deregulation of numerous sectors, simplification of processes, removal of legacy issues like ‘retrospective tax’, privatisation, production-linked incentives and so on thus help in maintaining macroeconomic stability in the country during the post Covid recovery.