Context: The forthcoming budget should ease supply-side obstacles to growth and also allow for expenditure in debilitating sectors.
Key issues requiring the fiscal stimulus:
Unable to keep up with the aggregate demand: This calls for a focus on lagging sectors in the Gross Domestic Product (GDP) estimates.
Declining mobility: The steepest decline is in internal trade and transportation, at -21.4% (including hospitality and tourism).
Declining infrastructure: While there was a decline in the mining sector (at -8.6%), there is also a corresponding rise in the price of iron-ore, threatening the recovery of construction.
The multiple measures taken by the Reserve Bank of India (RBI) for Micro, Small and Medium Enterprises (MSME) were commendable but covered only MSMEs with access to banks.
Incomplete projects: In October, 70% of those with known completion dates lay incomplete, with an average delay of 3.5 years.
Nutritional Status: was impacted due to pausing of The Integrated Child Development Scheme (ICDS), closing down of Anganwadis, suspension of mid-day-meal.
Provision of additional food-grain entitlement to poor households under the Garib Kalyan Yojana was unfulfilling as poor without ration card were excluded from it.
Impact of COVID: The economic situation differs from the textbook recession (where if tax revenue declines, expenditure can be held steady to provide automatic stabilizer).
However, COVID closures led to declining expenditures included in the budget estimates (on transportation, travel, office canteens and stationary).
Way forward:
Remove the fear of mobility: Free vaccination should go beyond front line workers and police, to operators of road and rail transport.
Infrastructure expenditure: Focus should shift from grand new projects to the completion of unfinished projects; MGNREGA to continue unabated, with the construction of warehousing and cold chains.
More funding in the health sector: in lines with the Atmanirbhar package, without sectoral strictures.
Ensure nutritional intake: of school children; locally sourced foods can also increase farmers’ income.
Non-fiscal measures: Re-assembly of the mining labour forces needs to be urgently attended by labour departments at both the Centre and states.
There is a need for a credit initiative from the lending groups to encourage new enterprises started by entrants into the labour force.
The reverse-charge mechanism needs to be restored in full for the goods and services tax to not be hostile towards small enterprises.
We need a bad bank that can offer a universal arm’s- length asset pricing option than asset reconstruction companies.