India’s Economic Performance From 2016- 2019

The Modi led BJP government was re-elected in 2019 for the second term so the
government policies/ fiscal policies did not have a major change and did not have a very
big impact on the economic growth or performance. It was a smooth transaction in the
second term due to the same government being elected again.

Fiscal Policies:
1- Demonetization-
● On November 8, 2016, the Indian government announced the demonetization of high-
denomination currency notes worth ₹500 and ₹1000, which was a daring decision.
Reducing black money, fighting corruption, stopping the flow of counterfeit money,
stopping the funding of terrorists, and encouraging the transition to a less cash-
dependent economy were the main goals of demonetization.

● The Aftermath of the demonetization saw an economic slowdown which lasted for at
least two quarters. The GDP growth of the country had come down to the low of 4 years.

● Immediately after demonetisation (November-December 2016), sales of

consumer durables and appliances slipped by 40%. The effect of
demonetisation was more pronounced in Tier-II towns and beyond,
generally referred to as up-country markets. The impact on the durables
and appliances segment was palpable as this market still operates 80%
on cash.

● One of the good outcomes of the demonetization and that was intended
too was the promotion of less cash economy and increase in the online
transactions throughout the country.
2- Goods and Sales Tax-

● The introduction of the Goods and Services Tax (GST) in India on July
1, 2017, marked a significant tax reform aimed at simplifying the
country's intricate tax structure and creating a unified market for goods
and services. This reform has had a profound impact on the Indian
economy, yielding both advantageous and disadvantageous outcomes.
● tax revenue growth: The government has seen a significant increase in
tax revenue after the introduction of the Goods and Services Tax (GST).
The Ministry of Finance released statistics showing that the gross GST
income collection for the fiscal year 2021–22 was ₹14.83 lakh crore, a
significant increase of 30% over the previous fiscal year.
● A boost in growth in the economy has resulted from the implementation
of the Goods and Services Tax (GST), which has eliminated tax
cascading, reduced logistical costs, and improved supply chain
efficiency in India. The International Monetary Fund (IMF) forecasts that
the introduction of the GST could increase India's GDP by as much as
4.2%.
 ● Formalisation of the economy: With the implementation of the Goods
and Services Tax (GST), businesses have been more inclined towards
joining the formal sector, enticed by benefits including reduced total tax
obligations and input tax credit benefits. According to a National Council
of Applied Economic Research (NCAER) research, the introduction of
the GST might increase the share of formal non-agricultural
employment by nearly 3.4 percentage points.

Government Spending-

-The fiscal deficit is:

● The budget deficit for the year 2016–17 was 3.5% of GDP.
● It stayed at 3.5% of GDP in the years 2017–18.
● There was an insignificant decrease in 2018–19, with the budget deficit
coming in at 3.4% of GDP.
But according to the revised estimates for 2019–20, the fiscal deficit rose to
3.8% of GDP.
-Spending on infrastructure:

● The budgetary allotment for infrastructure saw an important uptick,

rising from ₹3.96 lakh crore in 2016–17 to ₹5.97 lakh crore in 2019–20,
representing a strong rise of more than 50%.
● The government built 58,781 km of rural roads under the Pradhan
Mantri Gramme Sadak Yojana (PMGSY) in 2018–19, which is a
significant improvement above the 47,447 km built in 2016–17.

-Initiatives for Rural Development and Employment:

● The funding allotted to the Mahatma Gandhi National Rural Employment

Guarantee Act (MGNREGA) increased significantly from ₹48,000 crore
in 2016–17 to ₹60,000 crore in 2019–20, demonstrating a determination
to improve employment prospects and standard of living in rural areas.
● Significant advancements in rural housing were made under the
Pradhan Mantri Awas Yojana (PMAY), with roughly 1.54 crore dwellings
built between 2016 and 2019 with the objective of raising living
standards and offering excellent housing in rural areas.

-Programmes for Social Welfare:

● With the addition of nearly 37 crore beneficiaries between 2016 and

2019, the Pradhan Mantri Jan Dhan Yojana (PMJDY) significantly
advanced financial inclusion by giving previously underprivileged
populations greater access to banking services and financial resources.
● Between 2016 and 2019, the Pradhan Mantri Ujjwala Yojana (PMUY)
connected nearly 8 crore rural households to LPG, improving their
access to clean cooking fuel and enhancing their general well-being,
safety, and health.
 Monetary Policy:
The Reserve Bank of India (RBI) carried out monetary policies between 2016 and 2019 that had
a big impact on India's economic development. Here is a review of these policies and their
effects, backed up with significant information:

1. Repo Rate:
During this time, the repo rate, the main weapon used by the RBI to implement its monetary
policy, changed. It began at 6.5% in April 2016 and progressively dropped to 6.25% by June
2018, indicating a flexible position. But worries about inflation forced a change to more stringent
measures, which resulted in an increase of 6.5% by August 2018.

2. The inflation rate-

● a number of the main goals was to keep inflation within the desired range of 4% (+/-
2%).
● The Consumer Price Index (CPI) inflation rate stayed within the desired range for the
most of the time.
● Nonetheless, CPI inflation in 2019–20 only barely surpassed the upper bound.

3. Economic Development-

● The RBI sought to preserve price stability while promoting growth.

 ● Over this time, India's GDP growth rate varied, projected to have grown by 8.3% in
2016–17 and 4.2% in 2019–20.
● While more restrictive policies in 2018–19 attempted to reduce inflation, accommodating
ones in 2016–18 supported expansion.

Management of Liquidity:

● Liquidity was handled via a variety of instruments, including open market operations
(OMOs).
● Measures to inject money were initially used to promote growth.
● To tackle inflation, however, liquidity absorption strategies were subsequently put into
place.

Stability of Finances:

● In order to resolve non-performing assets (NPAs) and fortify the financial sector,
measures were introduced.
● To support the health of banks, the Prompt Corrective Action (PCA) framework has
been strengthened and stressed asset resolution was modified.

Conclusion:
India's economy had a dynamic phase from 2016 to 2019, with major policy measures and
reforms implemented to address numerous difficulties and promote growth and stability. The re-
election of the Modi-led government in 2019 guaranteed policy direction continuity, albeit with
significant modifications to take into account changing economic conditions.

Demonetization in 2016 promoted the use of digital transactions and helped to promote a less
cash-dependent economy, albeit initially creating an economic slump. A historic change, the
Goods and Services Tax (GST) was implemented in 2017 and improved tax revenue,
formalised the economy, and simplified the tax code.

During this time, government investment was concentrated on social welfare programmes, rural
development, and infrastructure development with the goals of boosting access to basic
amenities, fostering financial inclusion, and improving livelihoods. The Reserve Bank of India's
(RBI) monetary policy, which included changes to the repo rate and liquidity management
techniques, was crucial in preserving price stability and fostering economic growth.

In spite of obstacles including rising inflation and variable GDP growth rates, India's economy
saw a generally good trend during this time. The RBI's efficient monetary management
combined with the government's proactive approach to policy creation and implementation
helped the economy overcome a number of obstacles.