What more should be done to overcome Recession

The world economy nowadays is experiencing economic slowdown. The result of this lead to shutting down of various industries like Lehman brothers, Merrill Lynch etc. The whole of Auto Industry is into loses. Toyota will be in loses for the first time in 71 years. Employees are being laid off everywhere. It is having an impact on Indian economy too. In order to put economy back on the high growth, it is necessary that the Government act swiftly to overcome the structural constraints.
The Government of India has announced a fiscal stimulus package of Rs.20, 000 Crores. The industries are going through tough times and it may well decide to appropriate the savings for itself. Second, equally uncertain is the consumer response to fall in prices. Demand for cars and houses can mitigate a hundred problems; but the consumer may decide to postpone demand expecting a further fall in prices. Or he may even feel that borrowing is not still the best option. Besides the Government, industry, too, needs do its bit to overcome the crisis in the economy. In the automobile sector, huge cuts in prices are announced which is mainly due to the decrease in excise duty by 4%. It will at least clear up a huge stock of inventories and restart work in the factories. The fall in factory production is the highest in the last fifteen years. In addition to this Prices of petrol and diesel were reduced by the Petroleum Ministry not only because the global prices of oil are falling steadily, but also to ensure that it would facilitate generate more demand.
In a crisis of this type, the Government’s priority is to step up spending on infrastructure. RBI is taking efforts to increase the investment rate. Recently it has reduced the CRR, SLR etc.
What more needs to be done?
Huge investments are required in agriculture sector (e.g. irrigation) because 60% of counties population is exposed and dependent on this sector. It is the fact that out of the 60% a majority are in the rural areas which have low income levels. Investment in this sector leads to higher income level in rural areas which will in turn lead to increase in demand. This would lead increase in demand of most of the goods and services.
Another initiative that government can take is speeding up the process of setting up the proposed SEZ’s through out the country (low interest rate, stable steel, cement and oil prices, availability of labor). One of the worst hit is the IT (information technology) sector because of its dependence on the developed markets (US,EUROPE). The profit margins have considerably declined. In order to boost this sector, the government can increase and extend the tax benefits which would in turn attract more investments and FDI.

Shikhar Vaid