Experts suggest fiscal measures to boost demand amid pandemic – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/economy/policy/experts-suggest-fiscal-measures-to-boost-demand-amid-pandemic/articleshow/83016290.cms?utm_source=ETTopNews&utm_medium=HPTN&utm_campaign=AL1&utm_content=23Synopsis

This targeting spending is also required for contact-based services that have borne the brunt of the pandemic since last year, economists said even as they acknowledged limited fiscal space for the government.

Fiscal measures such as direct cash transfers, enhanced allocation under rural job guarantee scheme, free foodgrain distribution, modest cuts in excise duty on fuels, and expedited vaccination are crucial to overcome the second wave of Covid-19, top economists have said.

It is crucial to support rural and urban demand because the economic impact of the pandemic this time will be more on demand impulse than on supply-side disruptions amid an intensification of infections in rural areas, they said.

This targeting spending is also required for contact-based services that have borne the brunt of the pandemic since last year, economists said even as they acknowledged limited fiscal space for the government.

“Targeted spending through cash transfers can be done to support both rural areas and the urban poor,” said DK Joshi, chief economist at ratings agency Crisil. “Direct spending, or through employers, would have to be given, considering whatever the fiscal space allows,” he said while cautioning that direct cash transfers come with distribution problems.

Aditi Nayar, chief economist at rating agency ICRA, said, “Overall, the space for a fiscal stimulus is likely to be limited, making effective targeting crucial.”

Demand in rural and urban areas may need to be supported given the expected prolonged impact of the second surge on sentiment, she said, suggesting a combination of free foodgrain and cash transfers, higher allocation under the Mahatma Gandhi National Rural Employment Guarantee Act, and cuts in excise duty on fuels.

“There is a likelihood that the MGNREGA allocation may need to be enhanced from FY22 budget estimate of Rs 0.7 trillion, given concerns regarding the rural economy,” Nayar said.

India Ratings and Research (Ind-Ra) said the impact of second wave on the economy will be felt more through the loss of demand impulse than supply-side disruptions. The loss of demand-side impulse is expected to be more pronounced in rural areas than in urban areas, notwithstanding the Indian Meteorological Department‘s forecast of a near normal monsoon in 2021, it said.

Sunil K Sinha, principal economist at Ind-Ra, called for strengthening focus on the vaccination drive. “In the interim, providing free rations, income support, higher allocation under the Mahatma Gandhi National Rural Employment Guarantee Scheme would go a long way in reducing the injury inflicted by the pandemic in the rural area,” he said in a note.

Economists have also suggested higher allocation to farmers under the PM-KISAN scheme. The call for targeted spending comes as the US too has given fiscal stimulus through one-time direct cash payment, expansion of unemployment benefits to include gig workers, and grants to hospitals and health care providers.

fiscalsupport

In April, India had eased the rules for capital expenditure by its ministries to try to boost spending in the economy and also announced the allocation of 5 kg of free food to the poor every month.

However, fiscal room is limited for the government despite the Rs 99,122 crore dividend it received from the Reserve Bank of India.

India aims to reduce its FY22 fiscal deficit to 6.8% of the gross domestic product from an estimated 9.5% last year, leaving little legroom to comfortably ease the purse strings.

“While the nature of the second wave of the virus is different from the first one when the rural economy was insulated, the situation is difficult as large cash transfers would require fiscal leeway and the government is not comfortable with that,” said Sakshi Gupta, senior economist at HDFC Bank.

Gupta expects an extension of last year’s stimulus package, reflecting partial credit guarantee and reiteration of fast-tracking infrastructure projects on the lines of the Aatmanirbhar Bharat mission.

Industry association Assocham’s secretary general Deepak Sood said trade and industry, particularly MSMEs, professionals, and those in the service sector would need immediate fiscal support for resuming their operations.

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