The stimulus that came in tranches won’t make for a big push to the economy. Much more is required
Finance Minister Nirmala Sitharaman has been announcing economic booster packages in small doses over the weekend but the fact of the matter is that the stimulus just doesn’t seem punchy enough for a big push. Yes, on any other day, policy-driven structural and reformatory changes would have seemed visionary as all of them can only yield results in the long-term and frankly cannot make it past the agenda-setting stage at this moment. But these are turbulent times, the COVID-19 pandemic is severely aggravating an already depressed economy and a fund infusion in the form of largescale cash transfers is still needed. Just to galvanise the wheels of the economy that are still grunting and gasping. The intended beneficiaries, like migrants, the self-employed and small unit owners, are so listless that they cannot wait for processing loans, they need money in hand. Anyway the relief for them has come too little, too late. States, too, need much more to steady the ship from all sides. Yes, market-borrowing limits for States have been raised from three to five per cent of the Gross State Domestic Product (GSDP). But this is contingent on them introducing reforms relating to portability of ration cards though digitisation, power distribution and ease of doing business. This makes much of the agency of decision-making dependent on Central assessment and could be used as a tool for playing politics. None of these measures makes sense in the absence of demand and the increasing spiral of joblessness means consumer spending is at an all-time low. Without any discernible immediate push to perk up overall infrastructure, there is little scope for job creation, incomes or demand. The Government is probably holding back on largescale bank transfers, fearing bad loans and provisioning for a deeper trough, but the fact of the matter is that if nothing is done to plug the current sink hole, the economy could whoosh down further like quicksand. For all the grandiloquence, the actual fiscal outgo is just a bit over one per cent of the GDP, which is hardly enough to battle an unprecedented crisis such as this, when the economy is expected to contract to 12.5 per cent. All packages are aimed at pushing banks to extend credit on the basis of Government guarantees to certain sectors or measures to ease cash flow to companies in the short run rather than addressing collective anxieties of the economy as a whole. While the Finance Minister has put the overall stimulus at Rs 20 lakh crore, the near-term fiscal impact is just Rs 1.7 lakh crore, including free foodgrain, additional DBT, healthcare spending, fund outlay for MSMEs — subordinated debt and equity contribution — EFT support, interest rate subversion for Mudra loans, subsidies under CLSS-MIG, viability gap funding and additional MGNREGA allocation. Some amount would go into creating infrastructure for agriculture and allied activities in the longer run. Policy wise, there are quite a few ups in the form of emphasis on social infrastructure, rural jobs, turning agriculture into a robust business model, improving healthcare facilities like setting up infectious disease blocks in district hospitals and e-learning programmes through satellite channels. All of these will be on a public-private partnership model. There is regulatory relief for entrepreneurs to encourage investment and reduce public sector monopoly except in strategic sectors. Structural reforms in coal, minerals, defence production, civil aviation, power distribution, space and atomic energy are definitely welcome but have long-term gestation. We know how long coal block auctions, which have been allowed, take and the procedural bungling that happens in between. FDI limits have gone up but one hopes that foreign and Indian firms can help develop a local industry and get some tech transfers. An additional Rs 40,000 crore has finally been allocated to MGNREGA to generate more work for returning migrants but that doesn’t address the chronic labour shortages at vacant SEZs and the urban economies. That’s where the demand is.
A crisis provides a rare opportunity for structural reform and an impetus to the Government to think out of the box without being hemmed in. Seemingly done for the poorest, the Government has just rescued them temporarily without providing them long-term comfort as growth is projected to dip in key sectors. Right now, the focus seems to be on attracting investment but boosting demand means innovative responses and interventions to specific problems and sectors and get each moving lest they clog up the economy as a whole. Promises can be made anytime but how many can be actualised overnight? Such is the crisis that only increased Government spending can work now, considering that most Governments around the world, some of whom have been tight-fisted, too, are doing so.
(Courtesy: The Pioneer)