The Alarm in Those Numbers

The Economic Times 7th September 2020 Save

Context: The Centre’s reluctance towards fiscal expenditure today seems logical because it wants to conserve resources for a possible future stimulus.

Need for Immediate Fiscal Relief Measures

Rising Indebtedness of the Small and Medium Enterprises (SMEs): that have stayed open but have huge unpaid bills and high-interest rate putting pressure on their sustainability.
The growth potential of the economy will be seriously damaged in future without fiscal stimulus.

For, E.g. Brazil, which has spent tremendously on relief, is seeing a much lower downgrade to medium-term growth than India.
The United States, despite spending over 20% of GDP in fiscal and credit relief measures, is still worried about the economic recovery.

Low Discretionary spending on high-contact services like restaurants, and the associated employment, will stay low until the virus is contained.
Social Insecurity: Without relief, households skip meals, pull their children out of school and send them to work or beg, pledge their gold to borrow.

The way forward: Resource Mobilization in every possible way -

Borrow more without scaring the bond markets if it committed to returning to fiscal viability over the medium term.

For e.g., by setting future debt reduction targets through legislation, and committing to honest and transparent fiscal numbers with an independent fiscal council.

Prepare public sector firm shares for on-tap sale, to take advantage of every period of market buoyancy.

Preparations for sale of public and private land will give bond markets greater conviction that the government is serious about restoring fiscal stability.

Provide relief to the poor:

MNREGA scheme must be utilized for providing rural relief and should be replenished as needed.
Ensure more direct cash transfers to the poorest households, especially in urban areas that do not have access to MNREGA, is warranted.

The government and public sector firms should clear their payables quickly so that liquidity moves to corporations.
Small firms below a certain size could be rebated the corporate income and Goods and Services Tax (GST)
The government should set aside resources to recapitalize PSBs.
Incentivize large firms: Cash-rich platforms (like Amazon) could help smaller suppliers get back on their feet, even funding some of them.
Construct Financial Structures to help debtors and claimants such as landlords and banks reach agreements to restructure obligations.

Civil courts, debt recovery tribunals and National Company Law Tribunal should be beefed up to provide rapid backup judgments.

Increase stimulus in investment in infrastructure construction, which creates jobs and increases the demand for all manner of inputs like cement and steel.
Increase exports from India by reversing its recent raising of tariffs so that inputs can be imported at low cost.
Improve India’s trade competitiveness by implementing reforms to land acquisition, labour, power and the financial sector.