Now to stimulate the stimulus – The Economic Times

GoI has leaned on addressing the survival issue via some cash and in-kind transfers to vulnerable sections of society. But India is a consumption-based economy and, hence, not paying enough heed to push demand in the near term even in a Rs 20 trillion package will weigh on discretionary consumption spending and growth recovery.

There are three key signals from GoI’s Covid-19 economic stimulus package. One, the focal point has been a measured supply-side support, largely for the survival of the vulnerable. Two, wanting Indians to move to learning ‘how to catch a fish’ rather than providing them fish — empowering them, as opposed to making them dependant on entitlements. Three, the decision not to waste the crisis and, instead, seeking to change the economic architecture and the quality of growth through some much-needed reforms, the success of which depends on execution.

From the near-term perspective, there is disappointment that the package lacks an adequate demand side push. GoI has leaned on addressing the survival issue via some cash and in-kind transfers to vulnerable sections of society. But India is a consumption-based economy and, hence, not paying enough heed to push demand in the near term even in a Rs 20 trillion package will weigh on discretionary consumption spending and growth recovery. GoI could have evaluated targeted time-bound tax cuts (GST or direct), or incentives to spur consumption demand.

One hopes it does more on this front. The decision to distribute food grains, transfer some money into pockets of vulnerable, hike the MGNREGA allocation by Rs 400 billion is prudent and will act as a backstop for the rural and urban poor. It will also provide employment opportunities to returning migrant workers in the short term.

There is a lot of talk on the actual fiscal spending being just a fraction of the package. Clearly, GoI has been prudent keeping in mind the fiscal constraints, and has leaned in the favour of off-balance sheet measures such as credit, guarantees and regulatory forbearances that could play a role in perking up sentiments and preventing loss of productive capacity, especially for MSMEsNBFCs, discoms and the real estate sector in the near term.

From a medium- to long-term perspective, there are several commendable initiatives. The amendment of the Essential Commodities Act (ECA), endeavour to allow farmers to sell their produce outside the Agricultural Produce Marketing Committee (APMC), removal of barriers for inter-state trade, and a legal push for contract farming are momentous steps if taken to their logical conclusion.

But could GoI have been bolder here? Should it have seized the opportunity to abolish ECA outright and some other such interventionist policies that were dubbed ‘anachronistic’ by the government’s own chief economic adviser not so long ago? The new public sector undertaking (PSU) policy would facilitate entry of private players across all sectors.

However, timelines and execution of these measures would be key to their efficacy. There is also an effort to bring in more private investment in sectors such mining, coal, airports, social infra and power by removing today’s excessive constraints. Again, timelines and execution will hold the key.

The move to decriminalise innocuous violations under the Companies Act is a much-needed step that will enhance ease of doing business.

Also, GoI has been cognisant of the need of state governments to borrow more. However, it has sought to link most of their additional borrowing to their progress on reforms measures. This is a welcome step.

Most of the next-generation reforms India needs, have to come from the states. GoI may explore the feasibility of incentive-based transfers to states (including devolution of taxes) on a permanent basis.

The announcements of the stimulus package are just the beginning. These now need to be actionised. The intermediaries, enabling regulations or administrative capabilities, should not become a constraint impeding the speed and delivery.

Given that we will have to live with Covid-19, India needs to prepare an exit from lockdown intelligently, and must get cracking on its unfinished reforms agenda, especially on its efforts to woo large overseas investments, especially in manufacturing, and to break into global supply chains in a significant way.

The writer is MD-CEO, Mahindra & Mahindra

via View: Now to stimulate the stimulus – The Economic Times

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