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If you put two and two together, no one should be surprised if a four emerges. Fresh curbs on normal life, announced to contain the second wave of the pandemic, will take its toll on the economy, already staggering, going by the second month of the decline of the Index of Industrial Production (IIP) in February (over the like period last year), on the trot. The government will have to respond with additional relief measures for migrant workers who once again flee closed cities for the social security of their native villages. At the same time, the government and RBI will have to come up with additional support for the pandemic-struck industry, in particular the small and medium sector and the construction industry.
True, the IHS Markit Services Business Activity Index, while declining from the 12-month high of 55.3 in February to 54.6, marks the sixth month of expansion. However, night and weekend curfews would put paid to any sustained services recovery. Careful and swift implementation of the capital expenditure schemes announced in the budget would buoy demand for a variety of services, whose performance must be managed with careful coordination of personnel, all of whom observe Covid-appropriate behaviour.
The budget had rightly identified infrastructure as a priority investment area. Now, policy and funds must be marshalled to turn proposals into poured concrete and demand for steel, cement, labour, transport, nuts, bolts, wire, screws, paint and labour. Project management must improve. New institutional structures must be created. Further, market design for an active corporate bond market brooks no delay. Note that the National Infrastructure Pipeline (NIP) proposes to raise funds from the debt market. Institutional investors are allowed to invest in infrastructure bonds with at least AA rating. But most ongoing infrastructure projects here are rarely rated above BBB. Hence the pressing need for a credit enhancement fund. Policymakers cannot complain of lack of work.
This piece appeared as an editorial opinion in the print edition of The Economic Times.