Without fiscal stimulus 2020-2021 may end up at minus 10 per cent GDP

Venkat Parsa

New Delhi: The Modi Government is struggling hard to kick-start the economy. The minus 23.9 per cent growth in the First Quarter signals the need to chalk out on an urgent basis a Fiscal Stimulus that can put the economy back on the growth trajectory.

If the Government refuses to change its approach and strategy, the economy is bound to end up at Minus 10 per cent GDP for 2020-2021.

The Economic Slowdown, followed by the unplanned and unthinking Lockdown, dealt a body blow to economy. Ever since, the Government has been examining the ways and means to revive the economy and put it back on the growth path. But mere tinkering will not help. It requires a larger strategy to trigger investments.

Need of the hour is to come up with a robust Fiscal Stimulus that helps the people to tide over the economic crisis. It is not mere jugglery of figures but actual transfer of funds, putting money directly into the hands of the people, which is the real stimulus.

Earlier, the Modi Government announced Rs 20 lakh crore fiscal stimulus package which was pegged at 10 per cent of the GDP.

Most of it was in the form of giving loans and creating liquidity. In actual terms, it amounted to only Rs 1.86 lakh crore, which was just 0.91 per cent of the GDP. It was grossly inadequate, given the gravity of the economic crisis.

Now, Union Finance Minister Nirmala Sitharaman has unveiled a set of measures and termed them as fiscal stimulus.

The Leave Travel Concession (LTC) allowance is already part of the salary of the Government and public sector enterprises employees.

Consider the stringent conditions imposed on this Government offer. Must spend Rs 12,000 to Rs 72,000 out of the employees own money/savings; Must buy only a non-food item; Must buy items that have a GST rate higher than 12 per cent; Must buy only from a GST registered shop; Must pay only digitally; and Must buy before March 31, 2021.

What the Faineance Minister has told the employees essentially is to order the Government employees to spend their own money, while giving it the nomenclature of a stimulus for demand. This can, at best, boost GST revenue earnings for the Government, but not stimulate consumer demand.

Such steps are far too small to help the economy to grow. It cannot stimulate demand and investment.

What is indeed heartening is that at least there is belated realisation that consumer demand needs to be stimulated in the economy. This is something all leading economists, who even worked with the Modi Government, like Raghuram Rajan and Arvind Subramanian, had strongly advocated.

This is something that all well-meaning economists have clamoured for, especially in the wake of the fallout of the Lockdown.

The Modi Government announced a hastily designed economic package that has had no impact. The present set of measures is tantamount to a clear admission that the much hyped Rs 20 lakh crore Atmanirbhar Package announced by Prime Minister Modi has not worked to protect and revive the Indian economy.

What is clearly required is pumping money directly into the hands of the consumers, putting money directly into the hands of the people, to revive demand.

Perhaps the Congress has identified the Minimum Income Guarantee (MIG), which has been renamed as Nyuntum Aay Yojana (NYAY), as the way forward. The only credible way forward is to implement this scheme, under whatever name the Government may choose to. The idea is to put money into the hands of the people, which alone can trigger demand.

What the Modi Government has now envisaged is merely a diversion of cash from one area to another. This is a classic illustration like in case of LTC Cash Voucher Scheme and Festival Advance.

This certainly is not putting cash in the hands of people. That requires putting additional money in their hands. Forced spending from available money cannot trigger demand.

Whether it is called LTC or Festival Advance, this is money due to an employee. It cannot be equated with putting additional money in their hands, which alone can trigger demand.

Unless additional money is put in the hands of the wider people and not just the employees, only then consumer demand will increase. As of now, there is no question of a demand stimulus.

The States have not been given any additional aid and assistance, which is another way of triggering expenditure that creates demand.

Finance Minister Nirmala Sitharaman has announced Rs 12,000 crore to the Sates for Capital Expenditure. The States total Capital Expenditure Budget for financial year 2020-2021 is nearly Rs 9 lakh crore. The increase in States Capital Expenditure Budget is paltry.

The GST Dues of the States had not yet been paid. Instead, States are being forced to go into fresh borrowings to make up for the shortfall.

At the end of the day, it may turn out to be more of a yet another grandiose announcement than a practical step towards tackling the problem on hand. There is no extra spending to boost demand.

It is the weaker and vulnerable sections, who need to have money in their hands. Such have been left out in the cold. They are the bottom half of the families in India, who need direct cash transfer.

Clearly the Modi Government is disinclined to make a cash transfer to their accounts. Now this is a recommendation made by several economists.

Credit also goes to Congress leader Rahul Gandhi, who flagged the issue of direct cash transfer to the people in the run up to the General Election in 2019. In the present crisis, accentuated by the Corona Virus pandemic, when the economy has taken the greatest hit, direct cash transfer remains equally relevant now, as it was, when propounded by Rahul Gandhi.

 Venkat Parsa is a senior journalist and writer based in New Delhi

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