Background/Objectives: After 1990 India adopted the path of liberalization, privatization and globalization, making it a “Breakout Nation” achieving an average growth of 7% in Gross Domestic Product (GDP). However, during the last two years, growth is showing a declining trend. The policy makers are in a quandary whether to persist with inflation targeting and Fiscal Responsibility and Budget Management (FRBM) act or be flexible with public debt, depreciate Indian rupee and provide greater fiscal incentives to spur private investment and exports. The objective of the paper is to bring out a credible policy mix, to improve growth, employment and Human Development Indicators (HDI).
Methods/Statistical Analysis: It has used data from credible official sources and analyzed them through suitable tables and graphs. A correlation between growth and development has also been established. The swan model has been used to demonstrate the demand and CAD short fall in India.
Findings: The major findings are that to mitigate demand and current account deficits there is a need to depreciate Indian rupee, bolster investment in the private and public sector and provide tax incentives to propel the “Animal Spirits” of the entrepreneurs. Further since India’s high growth is not accompanied by improvement in nutrition level of children, Maternal Mortality Rate (MMR) and extreme poverty reduction, investment in the social sector must be doubled. Quality of primary education, skilling and research initiatives have to give greater attention. Privatization of public sector banks (PSBs) will improve financial intermediation and curtails Non Performing Assets (NPAs) substantially.
Application/Improvements: The recommendations would mark a definitive departure from the current obsession with fiscal stability at the cost of growth and development.