Fresh stimulus needed to boost India economy

When COVID-19 struck, India’s was the fastest growing large economy. The pandemic knocked it hard. For the first time in half a century the economy, instead of growing, contracted —by as much as 7.5 per cent. Last April the World Bank estimated that India’s economy will bounce back and grow at 10.1 per cent this year. In June it lowered the likely growth rate to 8.3 per cent, saying the second wave of the pandemic was hampering recovery.  

At the same time, it projected a 7.5 per cent growth rate in the next financial year beginning on April 1, 2022. Later it pegged the projected 2022-23 growth rate also lower at 6.5 per cent.

The second Covid wave, driven by new virus strains, has now subsided all over the country except in Kerala. But the threat of a third wave, driven by newer variants of the virus, looms large.

Inadequacies of official measures to boost the economy are forcing repeated revision of estimated growth rates. The World Bank, in its latest report, observed that the recovery process can benefit from policy support, including higher spending on infrastructure, rural development, and health.

Before the pandemic came the government had demonetised high-value currency notes and rolled out a new goods and services tax regime. Both measures were taken without adequate preparations and they disrupted the small, medium and unorganised sectors of the economy.

Last year the government announced a Rs 20,000 billion stimulus package to revive the Covid-hit economy. Many experts pointed out that it did not address the problems of small businesses and marginalised sections of the population.

The government appears to think that all that is needed to revive the economy is to help industrialists to resume production. It belittles workers’ role in the production process. It also overlooks the fact that there must be money in people’s hands to buy what is produced.  

The stimulus package did try to cater to various sections including migrant workers, street vendors etc, as also the agriculture sector, micro, small and medium industries.  But it did not properly address the issue of food security of informal workers. Instead of providing immediate relief to the needy, it offered loans and other long-term relief measures.  

Experts wanted the government to put cash in people’s hands, especially the marginalised.

The government claimed the package was equivalent to 10 per cent of India’s GDP.  A critic said it was barely 2.2 per cent of GDP. Reports of shortfalls in implementation of the package surfaced later.

A  Rs 50 billion credit facility was part of the package. It was to have benefited five million street vendors. But a year later 60 per cent of the targeted vendors were yet to benefit.

In this year’s budget the government launched a Rs 3,000 billion emergency credit line guarantee scheme to provide liquidity support to small and medium industries.

Few small borrowers and manufacturing units took advantage of the scheme. A study by an international group found that a change the government made in the definition of small and medium industries had enabled larger entities to siphon off the benefits of the scheme.

The government sanctioned five kilograms of grain and one kg of pulses free of cost to each poor household. Many of the estimated 800 million beneficiaries could not get them as they did not have ration cards.    

Last June Finance Minister Nirmala Sitharaman announced a new stimulus package. It provided for extension of loan guarantees and concessional credit for certain sectors and investments to ramp up healthcare capacities. It also extended the scheme for supply of grains to the poor till November.

This package too did not satisfy economists. They found the elements of direct stimulus in it inadequate and the fiscal costs rather limited. They said more stimulus measures are needed to boost the economy.

A welcome feature of the package was an allocation of more than Rs 23 2 billion for public health.

The government needs to help the millions whom the pandemic and the lockdown pushed into poverty and debt. Some policies it is pursuing show poor appreciation of the gravity of the situation.

For months, it let fuel prices go up even as crude prices were falling. This raised transport costs and pushed up commodity prices.

Unmindful of the raging pandemic, the government has been going ahead with the Central Vista project, which envisages redevelopment of a part of New Delhi at an estimated cost of Rs 134.5 billion.