ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Economic Challenges to the New Government

A Policy Proposal

India faces two distinct uncertainties in the short run: the nature of the electoral outcome, and the reduction in the United States' bond buying programme. The potential shocks could cause short-term volatility, though the economy now seems better placed than a year ago to face the challenge. Yet, stabilisation does not ensure economic revival. Stepping up investment demand, without jeopardising the current account balance and increasing external debt would be the key to sustainable growth. As the private corporate sector is mired in debt, a pragmatic increase in public investment by revisiting fiscal rules is the only credible option. A complete pass-through of fuel prices to domestic consumers would encourage investment in the industrial and energy sectors, while an easy credit for agriculture and small-scale industry is likely to augment wage goods output to restrain the rise in consumer prices.

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