Stimulus: The faster, bigger, the better–Economic Times

Clipped from: https://economictimes.indiatimes.com

Dire forecasts of GDP growth plunging deep into the negative territory might or might not be precise, but precision is not the point. They are akin to a threat to life that sends adrenaline pumping through the body, priming it to fight or flee. These forecasts of India’s FY21 GDP shrinking by anything up to 6.8% should send policymakers to stop saying they are open for another round of fiscal stimulus and actually unleash one. It is welcome that the government has announced measures to transfer some purchasing power to the poor and offered some loans to the MSMEs. These steps are akin to putting a dying man on life support. It is not enough to let him lie there. More has to be done to put him on his feet and get him running. That calls for a large dose of investment, which would put purchasing power in the hands of people.

The government, RBI and Sebi need to work together to create a vibrant market for corporate bonds. That is essential for large-scale infrastructure investment. Buying out the debt of stalled real estate and other infrastructure projects, acquiring majority ownership in them and completing them is what a State-owned vehicle needs to do, to create the demand to meet which companies would issue bonds. Let some special vehicles set up by the government buy these corporate bonds and start selling them, instead of holding them to maturity. Credit default swaps and the entire range of derivatives to hedge against interest rate and currency risk must be made available, for the bond market to flourish. Once the bond market is established, domestic and foreign funds would start trading them, deepening the market and encouraging fresh bond issuance to finance fresh investment.

All the investment does not have to be done by the government. For example, the government has opened up coal mining to private sector, including foreign investment. If energetic efforts are made to materialise such investment, that would generate much upstream and downstream investment. Funds alone do not a stimulus make, but funds are key.

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