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In the economic history of our country, there have been some significant developments in the formulation, enunciation and management of fiscal policies over the last decade. In this era, concerted efforts have been made to simplify the tax structure. Introduction of the Direct Tax Code (DTC) and GST were considered as the two major initiatives for such simplification. So far, the DTC has not seen the light of day, but, fortunately, after several rounds of debate and discussions, GST has been introduced.

It has however been observed that introduction of GST and the demonetisation that preceded it, have caused some serious dislocations to trade and industry, particularly in the informal sector and MSME sector. Besides, there have been some adverse effects of demonetisation in the agriculture and construction sectors which has stagnated employment generation.

However, despite the dislocations caused in the short‑term by simplification of the tax regime and demonetisation, India’s economy is likely to outperform most emerging markets in per capita GDP growth and improve the country’s business environment. According to the World Bank’s latest edition of Global Economic Prospects, after conceding its position as the fastest growing major economy to China for a year in 2017, India is likely to reclaim the position in 2018 on account of growth expected to accelerate to 7.3%. Yet the woes of the manufacturing and the agricultural sector seem to be continuing. More importantly, while we are looking forward to fiscal stimulus to arm ourselves, the government seems to be unable to achieve the target of fiscal deficit and revenue deficit. Besides, due to decline in growth in the manufacturing sector, projected growth in employment is also suffering.

On the export front, which is another area of interest for trade and industry, while there has been a positive growth of 7.11% for the period April to January, 2017, imports during the same period have registered a positive growth of 22.21% resulting in a trade deficit. The Budget 2018 has proposed an increase in basic customs duties for some 50 items on the grounds of the ‘Make-in-India’ objective. While this may help in narrowing the trade deficit, it is feared that the enhancement of customs duty is going to increase the cost of production across many industries.

On the other hand, considering that the weighted average of the indices of India’s nominal exchange rate against 36 countries has appreciated by almost 19% between January 2014 and January 2018, the best way to support domestic producers in competing against imports will perhaps be to move to a more favourable exchange rate.

There is one more issue which is causing increasing concern, and that is related to the management of the banking sector. There seems to be a serious crisis in this sector and banks are becoming more cautious in lending as bad debts are mounting. The recapitalisation needed for bringing banks into the Basel III norms is reported to be at least double the current bailout package of `2.11 trillion. It could be an opportunity for investors provided the industrial outlook brightens.

In the agricultural sector, we seem to remain dependent on the weather gods and despite the emphasis laid on technological infusion, the cases of farmer suicides continue to mount. There is no clarity as to what steps are being taken for addressing the current problems in the agricultural sector.

The current problems of socio-economic growth and lack of employment generation, fall in industrial and agricultural production and decline in export growth needs special attention of the central government.

The article is based on his address as the President of Bharat Chamber of Commerce on February 26, 2018