The sentiment boost that India’s economy is in need of

Source-Live Mint

Relevance: The article explains the areas, the government should focus, for achieving desirable economic growth.

Synopsis – A more rapid vaccination drive, greater government spending, and a reduction in fuel cess might help in the economic recovery and uplifting the public sentiment.

Factors that could boost sentiment and play a crucial role in strengthening the economic recovery-

• First, Faster vaccination is critical for economic recovery – If India is able to vaccinate two-thirds of its population and attain herd immunity, the economic outlook will be brighter.
  • Possible Solution: This can be achieved by increasing the vaccination rate to 6 million per day in the second quarter of 2021-22 and increased to 8 million in the third. Then all adult populations should receive both vaccine doses by early February 2022.

• Second, Government spending – The government spent Rs.2.7 trillion in April 2021, which was 26 percent less than the Rs.3.07 trillion it spent in the year-ago month. The government’s revenue spending fell by 35.6 percent y-o-y to roughly Rs.1.8 trillion in April 2021.
  • Furthermore, despite record tax collections, the government reduced the state’s share in Central taxes. Lower devolution of taxes by the Centre [in April 2021] has affected the ability of the state governments to spend.
  • Possible solution: If the monthly devolution is increased by the Centre to the states, it may encourage states to accelerate capital spending.
• Third, Reduction in fuel cess can boost sentiment – Fuel cess reductions would provide a monetary policy with more room to support a recovery in growth.
  • Lowering fuel prices would also help to mitigate some financial burdens on consumers, allowing for a more rapid recovery in consumer sentiment and spending.
  • Possible Solution: According to ICRA, The GOI will get Rs.40000 Crore revenue through higher collection of cess. If the government decides to forego this additional cess collection, it can reduce the cesses by Rs 4.5 per litre, and help contain the inflation situation.