INTRODUCTION

Governments use spending and taxing powers to promote

stable and sustainable growth. Government is a system
governing an organised community and government usually
consists of legislature, executive and judiciary. Government
policy is a declaration of government political activities, plans
and intentions relating to a particular cause,it establishes many
policies that guide businesses. The government can make
changes in fiscal policy which leads to changes in taxes, trade,
subsidies, regulations, interest rates, licensing and more.
Businesses should be flexible enough to respond to changing
rules and policies.The government makes policies to take
action against the current complications. The government
policies make sure to fulfil the future obligations/requirements
of the economy. Sometimes the government takes certain steps
or introduces certain bills which causes havoc in the country
and impacts the economy in either positive or negative ways.

Why Do Governments Intervene?

The government may decide to regulate some aspects of economic activity
in order to engineer economic growth or prevent negative economic
conditions in the future. In general, a government's active role in
responding to and influencing the economic circumstances of a country is
for the purpose of preserving and furthering the economic interests of the
general public.For those in political power, having a track record of
economic growth is often an important consideration (especially if they are
in a position of seeking re-election).
 Farm laws

Modi's aim of bringing private investments into India's huge

agriculture sector through three laws, enacted by parliament
late in 2020, triggered the country's longest-ever farm
protests.Multiple rounds of discussions between farmers'
groups and the government failed to end the agitations, as ten
of thousands of protesters in tractors, trucks and SUVs blocked
roads leading into New Delhi but In a surprise move, Prime
Minister Narendra Modi announced that the government will repeal
the farm laws in the Winter Session of Parliament. He said that
although these laws were passed with the best intentions for the
betterment of farmers, his government could not convince the
agitating agriculturists about their positive potential. PM Modi said
that the government will constitute a committee comprising
representatives of the Union and state governments, agri-experts and
scientists to come up with a new package for farmers.As far as
agriculture is concerned, it will keep chugging along the path it has
been on for about a decade or so. The agri-GDP growth has been 3.5
per cent per annum in the first seven years of the Modi government —
the same as in the first seven years of the Manmohan Singh
government. One expects this trend to continue — there might be
minor changes in the agri-GDP depending on rainfall patterns.
Cropping patterns will remain skewed in favour of rice and wheat,
with the granaries of the Food Corporation of India bulging with
stocks of grain. The food subsidy will keep bloating and there will be
large leakages. The groundwater table in the north-western states will
keep receding and methane and nitrous oxide will keep polluting the
environment. Agri-markets will continue to be rigged and farm
reforms will remain elusive for some time to come unless the
promised committee comes up with more meaningful solutions.But
what will happen to farmers’ incomes? And will the Modi
government accept the farmers’ demand for giving legal status to
MSP? The latest Situation Assessment Survey of the NSO reveals that
the income of an average agri-household in India was only Rs 10,218
per month in 2018-19. Translated to today’s prices, and applying
roughly 3.5 per cent per annum growth in real incomes, the income of
an average agri-household would be around Rs 13,000 today. Add
another Rs 500 per month under the PM-KISAN scheme, and this is
roughly the level of the monthly family income in rural areas for the
largest segment of our workforce (roughly 45 per cent) — one that is
engaged in agriculture. This is not a very happy situation and all out
measures need to be taken to increase rural incomes in a sustained
manner.Given that the average holding size stands at just 0.9 ha
(2018-19), and has been shrinking over the years, the income a farmer
can earn from producing basic staples is not hard to guess. Unless one
goes for high-value agriculture — and, that’s where one needs
efficient functioning value chains from farm to fork by the infusion of
private investments in logistics, storage, processing, e-commerce, and
digital technologies — the incomes of farmers cannot be increased
significantly. There is no doubt that this sector is crying for reforms,
both in the marketing of outputs as well as inputs, including land lease
markets and direct benefit transfer of all input subsidies — fertilisers,
power, credit and farm machinery.While the government maintained
that the farmer protests have only minimally impacted the economy,
industry leaders said the current agitation by farmers in many parts of
India has led to disruption in supply chains and logistics. They urged
the government and protesting farmers to find an amicable solution
for the sake of the economy, which is already struggling to get on a
growth trajectory amid the Covid-19 pandemic.The protest will have
a bearing on the economy over the coming days and may impinge the
ongoing recovery from the economic contraction due to Covid-19,
said the Confederation of Indian Industry (CII) in a statement.The
farmers’ protests, which have intensified over the past couple of
weeks, have led to obstruction of traffic and road blockades across
multiple checkpoints in the northern States of Delhi-NCR, Punjab,
Haryana, Uttar Pradesh and Rajasthan, and in a smaller measure
across many other States. The already broken supply chain which was
recovering post the lockdown has come under severe stress.

DEMONETISATION

Demonetization refers to withdrawal of a particular form of currency

from circulation. It is necessary whenever there is a change of
national currency; the old currency must be remove and substituted
with the new currency unit. The currency was demonetizing first time
in 1946, and second time in 1978. On 8th Nov. 2016 the currency is
demonetized third time by present Modi Government. The chaos was
created in every strata of the society whether upper, middle or lower.
Where some welcomed the move as it was seen for curbing black
money, many are suffering by this movement. In this paper analyze
the current and immediate impact of demonetization on the Indian
economy and work out the probable consequences of the
demonetization.

Positive & Negative Impact of Demonetization:-

Impact on Black Money and Corruption: ' Black Money' or 'Dirty

Money' is the money on which not tax is paid to the Government and
it goes unaccounted in the duration of country tax assessment period
which causes revenue loss to the government. It is argued that steps
taken by the government of demonetization can help curbing black
money in the country. Corruption will also be automatically reduced
by removing black money from economy.
1. Source: SBI Research, RBI The Table depicts the public holding
of high denomination notes worth Rs. 9926 billion as on march
2016. There are 3 scenarios in table. In scenario 1 and 2 it is
assumed that 50% of the notes of higher the denomination do
not return to the system. It is also reasonable to expect that 60%
of Rs. 500 notes and 40% of Rs. 1000 notes would be
exchanged at banks/ post offices and RBI before March 31,
2017. Based on such estimates, roughly round Rs. 4.5 lakh crore
of money could disappear from the system.

2. Impact on Counterfeit Currency: The Biggest positive impact of

the demonetization will be on the counterfeit/fake currency as it
currently thrown out of the system fully.

3. Impact on GDP: GDP become down because circulation of

currency is less because of cash crunch in the country. The GDP
formation could be impacted by this measure, with reduction in
the consumption demand. Moreover, this expected impact on
GDP may not be significant as some of this demand will only be
deferred and re-enter the stream once the cash situation becomes
normal.

4. Lower Inflation: Inflation arises due to higher liquidity in the

market. Because of demonetization there is less liquidity and
less cash flow in the market thats why inflation becomes down.
As the black money goes out of the system the money supply
 will shrink to some degree. This will reduce inflation rate in the
Lower absence of any open market interventions by the Reserve
Bank of India. Inflation is of four types.
Creeping Inflation (2% – 4%)
Walking Inflation (5% – 10%)

Galloping Imflation (10% – 20%)

Hyper Inflation (more than 20%)

5. Impact on Purchasing Power: The move of demonetization has

affected the purchasing power. This is mainly affect those assets
that are used as long term investments like Real Estate, Vehicles
and core sectors of cement and steel. The stock prices of the
companies of these sectors will have a negative impact.
Purchasing power of consumer is also affected due to the
shortage of cash because 90% transactions taking place in cash
in the Indian economy.

6. Impact on Real Estate Sector:

Demonetization smashed the real estate market and it will result
in more than 50% drop down and it will remain for further 5 to 6
months. While the short-term impact is negative, Experts hoping
that rate cuts in the coming months would boost home sales.
7. Impact on Banks and Financial Institutions:
The demonetization effects on banks will be both on the positive
side and the negative side. However, In the long run it will be
more on the positive side. As per directions of the Government
people have to deposit their money with the banks which will
increase the liquidity of the banks for short term. This liquidity
can be used by banks for lending purpose for long run.As the
liquidity of banks increases, they are expected to enhance the
borrowing cycle by lending money at lower rate of interest.
However, the negative impact also as the earning of the banks
will also take a hit for the next 2-3 quarters. We may not see
loan book growing as the banks will be busy in facilitating the
demonetization process.

8. Impact on Lending Rate: Lending rate become down because of

Banks getting money at Repo rate and banks lending money at
Base Rate. In this situation Repo Rate becomes less and
automatically Base Rate will become down and banks having
sufficient money to lend so lending rate become down.

9. Impact on Ecommerce: Impact of demonetization on

Ecommerce mostly bad, some good. For the online retail
market, gross merchandise value (GMV) of players fell by
40-50% in first few weeks after demonetization, in the middle of
their biggest quarter for sales. Things may remain bleak till
March. Even high-value items like expensive smart phones are
selling less. Products returned are up by 50%. And experts feel
consumer sentiment wont improve quickly. But the boost to
 digital payments (100% jump in transactions) has led industry to
hope for a bright medium term. Also, grocery and food delivery
set-ups are doing better since they sell essential items. Some
saw new customer orders jump to 25%, from the usual 15-16%

10. Impact on Tourism:

Cash Crunch badly hits the tourism sector. It is very difficult for
people for getting the money from the banks and ATMs. The
travel and hospitality industries are facing a tough time.Peak
tourism period of November-December badly hit. For tourist
destinations beyond metros, business may be down by as much
as 40%. Tourism business in metros may go down by 10%. Cash
shortage at airports and hotels are a big problem. And many
national monuments entry points dont have card payments
facilities. Western countries have issued advisories on cash
Liquidity in India

11. Online Transactions and others modes of payment: The

Government wants to go cashless, Demonetization will have
positive impact on digital transactions and other mode of
payment.
 LOCKDOWN

As per the official data released by the ministry of statistics and

program implementation, the Indian economy contracted by
7.3% in the April-June quarter of this fiscal year. This is the
worst decline ever observed since the ministry had started
compiling GDP stats quarterly in 1996. In 2020, an estimated
10 million migrant workers returned to their native places after
the imposition of the lockdown. But what was surprising was
the fact that neither the state government nor the central
government had any data regarding the migrant workers who
lost their jobs and their lives during the lockdown.The
government extended their help to migrant workers who
returned to their native places during the second wave of the
corona, apart from just setting up a digital-centralized database
system. The second wave of Covid-19 has brutally exposed and
worsened existing vulnerabilities in the Indian economy.
India’s $2.9 trillion economy remains shuttered during the
lockdown period, except for some essential services and
activities. As shops, eateries, factories, transport services,
business establishments were shuttered, the lockdown had a
devastating impact on slowing down the economy. The informal
sectors of the economy have been worst hit by the global
epidemic. India’s GDP contraction during April-June could well
be above 8% if the informal sectors are considered. Private
consumption and investments are the two biggest engines of
India’s economic growth. All the major sectors of the economy
were badly hit except agriculture. The Indian economy was
facing headwinds much before the arrival of the second wave.
Coupled with the humanitarian crisis and silent treatment of
the government, the covid-19 has exposed and worsened
existing inequalities in the Indian economy. The contraction of
the economy would continue in the next 4 quarters and a
recession is inevitable. Everyone agrees that the Indian
economy is heading for its full-year contraction. The surveys
conducted by the Centre For Monitoring Indian Economy
shows a steep rise in unemployment rates, in the range of 7.9%
to 12% during the April-June quarter of 2021. The economy is
having a knock-on effect with MSMEs shutting their
businesses. Millions of jobs have been lost permanently and
have dampened consumption. The government should be ready
to spend billions of dollars to fight the health crisis and
fast-track the economic recovery from the covid-19 instigated
recession. The most effective way out of this emergency is that
the government should inject billions of dollars into the
economy.The GDP growth had crashed 23.9% in response to
the centre’s no notice lockdown. India’s GDP shrank 7.3% in
2020-21. This was the worst performance of the Indian
economy in any year since independence. As of now, India’s
GDP growth rate is likely to be below 10 per cent.

AGNEEPATH

Economists, army personnel and regional politicians claim that

the Agnipath recruitment scheme for the Army will damage the
Uttarakhand economy. The scheme will also pave the way for
an increase in migration from the hills.“World War I brought
qualitative changes to the society in Uttarakhand. Earlier, it was
a closed society and its agricultural economy was based on
barter, but in WWI Kumouni and Garhwali people were
recruited in the Army en masse,After the war, the society
started going towards monetization, the economic condition of
people improved and the process continues till today,For
example Uttarakhand currently has nearly 1 lakh serving
soldiers and 1.5 lakh retired soldiers. Their salaries and
pensions form a major part of the economy in the hills. “Serving
and retired Army personnel in Uttarakhand spend a chunk of
their salaries and pensions in the state. If it’s gone, the economy
will definitely slow down and people will be forced to
migrate.The Agnipath scheme will force hill youth to migrate,
which is already happening at an alarming rate in the border
areas. The proposed central scheme will spell a death knell to
the hill economy because of its temporary nature,”,this scheme
caused widespread protest in the country which too affected the
economy.

GOODS AND SERVICE TAX

GST, the biggest tax reform in India founded on the notion of

“one nation, one market, one tax” is finally here. The moment

that the Indian government was waiting for a decade has finally

arrived. The single biggest indirect tax regime has kicked into

force, dismantling all the inter-state barriers with respect to

trade. The GST rollout, with a single stroke, has converted

India into a unified market of 1.3 billion citizens.Fundamentally,

the $2.4-trillion economy is attempting to transform itself by

doing away with the internal tariff barriers and subsuming

central, state and local taxes into a unified GST. The rollout has

renewed the hope of India’s fiscal reform program regaining

momentum and widening the economy. Then again, there are

fears of disruption, embedded in what’s perceived as a rushed

transition which may not assist the interests of the country. Will

the hopes triumph over uncertainty would be determined by

how our government works towards making GST a “good and

simple tax”.The idea behind implementing GST across the

country in 29 states and 7 Union Territories is that it would offer

a win-win situation for everyone. Manufacturers and traders

would benefit from fewer tax filings, transparent rules, and easy

bookkeeping; consumers would be paying less for the goods

and services, and the government would generate more

revenues as revenue leaks would be plugged. Ground realities,

as we all know, vary. So, how has GST really impacted India?

Let’s take a look.

From the viewpoint of the consumer, they would now have pay

more tax for most of the goods and services they consume.
The majority of everyday consumables now draw the same or a

slightly higher rate of tax. Furthermore, the GST

implementation has a cost of compliance attached to it. It

seems that this cost of compliance will be prohibitive and high

for the small scale manufacturers and traders, who have also

protested against the same. They may end up pricing their

goods at higher rates.

Talking about the long-term benefits, it is expected that GST

would not just mean a lower rate of taxes, but also minimum tax

slabs. Countries where the Goods and Service Tax has helped

in reforming the economy, apply only 2 or 3 rates – one being

the mean rate, a lower rate for essential commodities, and a

higher tax rate for the luxurious commodities.Currently, in India,

we have 5 slabs, with as many as 3 rates – an integrated rate,

a central rate, and a state rate. In addition to these, cess is also

levied. The fear of losing out on revenue has kept the

government from gambling on fewer or lower rates. This is very

unlikely to see a shift anytime soon; though the government

has said that rates may be revisited once the RNR (revenue

neutral rate) is reached. The impact of GST on macroeconomic

indicators is likely to be very positive in the medium-term.

Inflation would be reduced as the cascading (tax on tax) effect

of taxes would be eliminated.The revenue from the taxes for

the government is very likely to increase with an extended tax

net, and the fiscal deficit is expected to remain under the

checks. Moreover, exports would grow, while FDI (Foreign

Direct Investment) would also increase. The industry leaders

believe that the country would climb several ladders in the ease

of doing business with the implementation of the most

important tax reform ever in the history of the country.

1975 Emergency

Today in 2022, we talk about privatisation, but it was in 1975 when

the private sector was hard to find, all thanks to Command
Economy and Licence-Quota-Permit Raj. The classical dictatorship
led to increased efficiency in the functioning of various machinery
of the Government. The Gross National Product during 1970-71
grew at the rate of 8.9%, the agricultural production at 15.6%, food
grain production at 21%, industrial production at 6.1%, and exports
were flying high at 21.4%. The very next year, this bubble of
economic growth burst when the Wholesale Price Index (WPI) rose
by 11.9% (26.03.1977), which had earlier declined by 11.6% between
28.09.1975 and 20.03.1976. This was because of the shortfall in the
production of a few basic commodities and the re-emergence of a
substantial imbalance between aggregate supply and demand in the
economyWhile the Emergency of 1975-77 was a great blow to India in political
terms, it was a period of significant economic growth. From agricultural output,
industrial production, and inflation to the number of workdays lost to strikes and
labour unrest, all major economic indicators were positive for the Indian
economy.The Economic Surveys of those years show that agricultural production
in 1975 and 1976 zoomed on the back of a bountiful monsoon in 1975 and
adequate rainfall in 1976. The country produced 48.7 million tonnes of rice in 1975
and 42.8 million tonnes in 1976, against an average of 41.5 million tonnes in the
previous five years. Wheat and pulses production grew around 20 per cent and 30
per cent, respectively, in 1975 and 1976.The Index of Industrial Production (IIP)
grew 6.1 per cent in 1975 and 10.4 per cent in 1976 over their previous year’s
levels, with basic metals, mining and quarrying, and electricity seeing the most
growth over the two years.Due to various steps taken by the Indira Gandhi
government in 1974, when inflation was in the high double-digits, wholesale price
inflation fell precipitously to -1.1 per cent in 1975 and 2.1 per cent in 1976. Food
inflation was well into negative territory—at -4.9 per cent and -5.1 per cent for
those two years. It was at a dizzying 38 per cent in 1974.Exports rose from a value
of Rs. 3,328.8 crore in 1974 to Rs. 4,042.8 crore in 1975 and Rs. 5,143.4 crore in
1976. Imports, on the other hand, stabilised and then even decreased. From 53 per
cent in 1974, import growth slowed to 16.5 per cent in 1975 and 3.6 per cent in
1976. As far as labour unrest is concerned, the number of workdays lost to strikes
fell precipitously, from 40.3 million workdays lost in 1974 to 21.9 million
workdays in 1975 and just 12.8 million in 1976. Overall, the number of riots fell
drastically in those two years, only to rise again in 1977.Looking at the
government’s expenditure during that time, the budget deficit widened during the
Emergency. Gross fixed capital formation grew at 9.7 per cent and 12.6 per cent in
1975 and 1976, respectively, following years of poor growth.