How much, how wide, and how far should the Indian Government go with fiscal stimulus package in its bid to revive the economy after more than 40 days of halt. We ponder.
India needs an aggressive intervention by Modi Indian Government to revive the economy. The effort in putting citizen health over the electoral promise of economic growth was a morally salivating decision for the government. But with 130 million Indians braced to restart life after the prolonged 40-day lockdown, an all-out action hand in hand with coordinated yet bold fiscal, monetary, and policy measures is the need of the hour.
Watch: PM Modi meets HM Amit Shah and FM Nirmala Sitharaman to discuss the second economic stimulus
The government at the center has taken a backseat in the response to the spread of the Covid-19 virus, letting state Chief Ministers become war-time chieftains. But as India enters Lockdown 3.0, the phase is meant to ready the machinery to reopen the economy.
Till now, the government, already struggling with the vegetative growth of the Indian economy is now in for an unprecedented recession. The cautious reopening of the economy needs to come with a formidable and maverick financial backing for every sector, working-class, and individual.
Aggressive generosity from the treasury is what the crisis demands
Generosity is seldom used with the adjective aggressive in today’s establishment prone polity. But while the state needs a social distancing between individuals in physical terms, it doesn’t need to tread with a similar wary approach when it comes to fiscal stimulation of micro and macro economies. The stimulus package should focus on both fiscal and monetary impetus going hand in hand.
The latest reports indicate that the Indian Government might not exceed the stimulus above $60 Billion or ₹4.5 Trillion so as to not breach the fiscal deficit too much as well as avoid a rating downgrade. But India Inc. and investors across markets are waiting with bated breath for a much larger help from the RBI’s treasury and government coffers.
The Indian Government’s stimulus reportedly won’t exceed $60 Billion so as to not over-breach the fiscal deficit as well as avoid a rating downgrade.
India needs bold measures similar to those adopted in the United States and in major European countries. In fact, some rating agencies suggest that the government should announce a package worth at least $150 Billion or ₹11.2 Trillion to revive the moribund economy.
Taking a cue from the US to revive MSMEs
Estimates suggest that the MSMEs (Micro, Small, and Medium Enterprises) alone need around ₹1.8 Trillion by way of working capital requirements. In addition, labor-intensive sectors such as textile and garment exporters need to be propped up through loosened labor and wage laws. This would allow them to optimize their labor requirements as well as the wage bills.
The state needs to help such sectors that are hit hard by shrinking export markets and the shutdown adding to the idling of capacity. Moreover, other sectors such as manufacturing need flexible stimulus measures such as allowing them to defer payment of rents and power and other utility charges as part of the comprehensive stimulus package.
While these are the overall expectations from industry, the government seems less inclined to go in for such aggressive measures. But, the Indian government can take a cue from the United States that has already passed two stimulus packages aimed at small businesses worth $2 Trillion and $484 Billion.
A good stimulus measure would also include an immediate crediting of the GST (Goods and Services Tax) refunds as well as a moratorium on such payments for three months.
Never a better time to push job creation
Talking about jobs, Modi 2.0 government has been at the receiving end of much criticism due to the ballooning unemployment rate. The post-pandemic open playing field will be a good opportunity to right the wrongs by going all out on the job creation front.
This is also a good time to revive the stalled infrastructure projects to spur economic growth on the demand side through job creation. Likewise, it would be a good idea to allocate more funds to MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), the rural jobs scheme.
As such, the budget for FY 2020-’21 had a capital allocation of nearly Rs. 1.7 Lakh Crore and this can be supplemented with additional funds. Apart from Infra and MNREGA, it can aid job creation with the expedited filing of the hundreds of thousands of vacancies in governmental departments.
In addition, a UBI or a Universal Basic Income policy would be a true game-changer as far as generating demand is concerned. The importance of supporting both supply and demand sides of the economy for the Indian government with a holistic stimulus package cannot be overemphasized.