The ongoing debate on the economy, set off with virulent criticisms of disruptive demonetisation and "inept" launch of a path-breaking reform, GST, at least helped to bring home to the Prime Minister Narendra Modi the serious issues requiring quick actions.

Mr Modi seemed hurt that attacks on his celebrated Government record in over three and a half years had come sharply from within, senior BJP leaders and former Union Ministers like Mr Yashwant Sinha, Mr Arun Shourie and Mr Subramanian Swamy, who all had spoken of "mismanagement" of the economy.

On a day the Prime Minister rose to make a forceful defence of his Government's policies and did some number crunching to make comparisons in performance with the predecessor UPA-II, the Reserve Bank of India's fourth bi-monthly monetary policy statement was hardly complimentary to Government on both the growth and inflation fronts in 2017/18.

The Monetary Policy Committee (MPC) lowered growth outlook for the current year from the earlier estimate of 7.3 per cent to 6.7 per cent (GVA). In fact, MPC continues to maintain its neutral monetary stance virtually ruling out any key lending rate (repo) reduction, now at 6 per cent, in the latter half of the year, given the consumer price inflation trend and rise in international oil prices.

Mr Modi made much of the opposition criticisms as if these related mainly to GVA slowdown to 5.6 per cent in the first quarter (April-June) 2017 and contended similar or even slower quarterly growth trends had occurred in the UPA regime. He, however, conceded there is a slowdown and his Government would do everything to reverse it.

In an elaborate articulation, apparently enraged by the stinging attacks on economic governance, Mr Modi defended his decision on demonetisation to ferret out black money, the quantum of which still remains a mystery, and spoke as if cash was evil to be driven away eventually to be substituted by digitilisation. Mr Modi is intent to bring the informal sectors into formal economy in a relentless manner in the full exercise of his authority. The regimentation will go on in the name of formalisation of the economy and making it “clean” rid of corruption.

Proud of his “boldest steps” like demonetisation and more he may conjure up, Mr Modi’s defence of Government ignored the lack of private investments so far in his reign, the paucity of jobs he had promised to create, and the highly stressed banking system which also needs to be recapitalised. But the fact he followed up his defence with hurried consultations with Finance Minister Mr Arun Jaitley and his confidante and party President Mr Amit Shah indicates that Government would have to make some crucial decisions soon.

The expectations of a Government fiscal stimulus to the economy now seems ruled out, at any rate for the present, given the fiscal consolidation objective, adherence to which would earn some kudos for it. The Governor of RBI Dr Urjit Patel has also cautioned that if fiscal deficit as budgeted at 3.2 per cent of GDP in current year is breached it could trigger inflationary pressures and affect macro-economic stability, at a time the economy is already afflicted with structural deficiencies.

But the Prime Minister, who had sidetracked the seriousness of problems on the economic front, would now be averse to do more dilly-dallying. That Government was itself groping for solutions, other than a fiscal boost. became clear when the Prime Minister hurriedly decided to revive the Economic Advisory Council headed by well-known economist Mr Bibek Debroy.

His broad assertions in a grandiloquent form had no nuggets of policy wisdom for the economy. Caution and political exigencies would guide his approaches with a spate of state elections in the run up to the Lok Sabha poll 2019. Mr Modi has had no compunctions for the misery caused to the common people by his demonetisation in the name of fighting evil of black money.

He did make a dubious claim that his Government brought down inflation to its lowest. Fall was entirely ascribable to the drop in oil prices which also helped to build the coffers and for Mr Jaitley to claim to be on track on fiscal deficit since NDA came to power..

Highlighting the problems before Government, RBI has noted the adverse impact from GST implementation so far, and says it is rendering prospects for the manufacturing sector uncertain in the short term. It may also further delay the revival of investment activity, which is already "hampered" by stressed balance sheets of banks and corporates.

Consumer confidence and overall business assessment of manufacturing and services sectors surveyed by the Reserve Bank show weakening in second quarter (July-September) but a significant improvement in business investment is likely in third quarter (Oct-Dec).

Hard work remains for Government and, to some extent, the Central Bank as well. According to RBI it is imperative to reinvigorate investment activity and for this, recapitalising public sector banks adequately is necessary to ensure credit flows to productive sectors. Government has also been urged to close the severe infrastructure gap and restart stalled public sector projects, further simplify GST and ensure a faster roll-out of the affordable housing program with time-bound single-window clearances.

While the Government has been claiming to have accomplished reforms to ease doing business and also implementing GST as a major structural reform, RBI says these would be growth augmenting only over the medium- to long-term. Likewise, RBI''s efforts to resolve stressed corporate exposures in bank balance sheets could start yielding dividends for the economy over the medium term.

It is expected Government would give priority to address difficulties experienced by various sections of business and trade and exporters in the implementation of GST. Beyond these incremental measures, designed to add to revenues perhaps in less harsh ways, the Modi Government needs to look to the small and medium enterprises which are more job-creating and provide a special dispensation for all labour-intensive sectors. (IPA Service)