The need for maximum government

The Hindu     19th November 2020     Save    
QEP Pocket Notes

Context: The current crisis has provided us with an opportunity to rethink our health, economic and climate policies

 

Reasons behind the Failure of Fiscal Governance/Stimulus

  • Decline in sales/ profits as a result of fall in demand: has disrupted the cycle of corporate investment and household consumption.
    • Corporate investment is limited by sales and/or credit.
    • Fiscal stimulus measures like credit guarantees and liquidity easing have failed to revive the consumption and sales of Micro, Small and Medium Enterprises (MSMEs).
  • Doubt over future incomes: has constrained the household’s propensity to take housing loans even after declining in cost of loans.
  • Overburdening of banks with bad loans: has limited their capacity in terms of extending credit and has violated the fiscal measure/policy of easing the credit flow.
  • High corporate liquidity: There has been a consistent growth in the current assets of the corporate sector, despite the fall in investment.

 

Way Forward

  • Strict adherence to Fiscal Responsibility and Budget Management (FRBM): both for the Centre and the States.
  • Ensure sufficient magnitude of fiscal stimulus: of at least ?10 lakh crore and borrow to finance it or, if required, monetize the deficit.
    • It should comprise free ration and other essentials like oil, soap and cooking gas.
    • Cash transfer till employment opportunities are back and ultimately bring an urban employment guarantee law.
  • Build robust public health infrastructure: on the principle of public provisioning instead of walking down the insurance route (failed in the United States).
  • Plan a comprehensive green deal: for addressing demand and supply side of emissions and ensuring a green energy mix and sustainable development process (financed by the government and partly by carbon tax).

 

Conclusion: Pandemic crisis has provided us with an opportunity to rethink our health, economic and climate policies on the lines of maximum governance.

QEP Pocket Notes