The Budget’s Stimulus Measures Must be Aimed Well for a Revival

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.