Bringing kid gloves to boxing bouts

High CAD, rising oil prices and depreciating rupee need a strong response from policymakers
The government is currently in an unenviable position. Whereas there are demands for taking strong steps to tackle the problems facing the economy, the Centre is seen handling the situation with kid gloves. Most of the afflictions of the economy — a high current account deficit (CAD), rising inflation, poor exports, expensive imports, and concerns over meeting the fiscal deficit target — are on account of depreciating rupee and rising oil prices, which are largely influenced by external factors. The government had already taken some steps to control the CAD, such as increasing import tariffs on several non-essential items, and sought to ease the burden of higher oil prices by cutting petrol and diesel prices for consumers. But these steps are akin to small dams tackling huge floods. The problem is the government can’t do more without risking damage to other important macroeconomic indicators such as the fiscal deficit.Whether the States will be willing to reduce VAT rates is a more political than economic question, one that only they can answer. In the early part of the government’s tenure, low oil prices gave it the luxury of cruising along by making only minor tweaks. Now, in the last few months of its term, a reversal of fortunes has meant the very most it can do are minor adjustments.
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