Health, infra and fiscal stimulus will act as our economic panacea

Synopsis: Health, infra and fiscal stimulus are at the core of the government’s economic revival strategy as they hold significant potential to propel growth.

Introduction

The covid pandemic and subsequent restrictions, led to never-before economic turmoil of unprecedented proportions, sending most business plans and strategies into near chaos.

Hence, the right public policies and a zealous private intent are key to future growth.

What are the indicators of a revival in the Indian economy?

Vaccine: Over 800 million covid vaccine doses have been administered. Active cases are coming down. Deaths are fewer.

Getting back to normal: Restrictions are being lifted across the nation. The country’s workforce is returning to work. A good monsoon amid the kharif sowing season has brought on some cheer in rural India as well.

Consumer demand is slowly growing: Agriculture, forestry and fishing are already on the path of positive growth. India produced a bumper crop in the last kharif and rabi seasons, despite pandemic.

Construction is showing signs of a rebound. Electricity, gas, water and public-utility services and public administration, defence and other services are getting back to normalcy sooner than other sectors.

Financial and professional services: they are well on their way to recovery. The information technology sector has breached many ceilings, posting growth from work-from-home routines.

What steps were taken by the govt?

Investment multiplier: To revive activities in specific sectors with multiplier effects on growth, the Reserve Bank of India (RBI) introduced on-tap targeted long-term repo operations (TLTRO) with tenures of up to three years for a total amount of up to ₹1 trillion at a floating rate linked to its policy repo rate.

The central bank also decided to increase its special open market operations to ₹20,000 crore.

Fiscal stimulus: India’s finance ministry announced an economic package covering three broad areas viz pandemic relief, strengthening public health, and growth and employment.

Increasing credit supply: The availability of low-cost loanable funds increases credit offtake to be utilized in new economic activities, which results in heightened revival and growth.

Consumer demand: ‘One Nation, One Ration Card’ can go a long way to revive flagging consumer demand and ensure food security for a majority of the population. After the migrant workers’ crisis during the 2020 lockdown, the focus shifted to reverse migration.

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme has already been used by almost 100 million people, its highest-ever utilization since its launch in 2006.

Infrastructure is crucial to an economic revival: Efforts to attract manufacturers to India from China must be augmented with improvements in domestic infrastructure.

The recent launch of a ₹100 trillion integrated infrastructure scheme should help make India’s economy more competitive. This Gati Shakti initiative aims at breaking the silos between road, rail, air and waterways to reduce travel time, which is expected to improve industrial productivity and raise global competitiveness and generate employment.

This is a way to reduce companies’ logistics costs, which presently account for about 13% of their expenses.

What is the way forward?

First, expansion of MGNREGA to urban area is also necessary to help stabilize the economy.

Second, physical and social infrastructure spending can simultaneously create jobs, attract private investment and improve the economy’s competitiveness.

Third, stepping up the pace of vaccination is the most effective stimulus. Strengthening and augmenting health infrastructure, urban planning, roads, rural infrastructure and digital infrastructure are going to be key drivers of economic growth in the long run.

Fourth, reforming the financial system with strong resolution mechanisms under the Insolvency and Bankruptcy Code to enable the creative destruction of haemorrhaging companies is a viable way forward.

Fifth, cultivating an open trade environment conducive to export-led, job-creating growth can provide long-lasting solution for the Indian economy.

Source: This post is based on the article “Health, infra and fiscal stimulus will act as our economic panacea” published in Livemint on 27th Sep 2021.