Long road to recovery
Centre must increase public spending to stimulate demand and strengthen growth momentum
The Goods and Services Tax (GST) collections crossing the Rs 1-lakh-crore-mark in October, for the first time since February this year, must bring cheer to an otherwise gloomy economy. The Purchasing Managers’ Index (PMI) for Manufacturing and Services has also recovered substantially, though the job scenario remains bleak. Other factors like positive growth in exports and automobile sales, pick-up in eway bill volumes and improvement in revenue earning freight traffic of major commodities provide an indication of the possible green shoots of recovery. These incremental trends are heartening and need to be sustained and strengthened. The GST revenue for October is 10% higher than the collections recorded in the same month last year. The eway bills, which indicate business activity reflecting the movement of goods as also the transport sector, saw an average year-on-year growth of 21% in October. This has generated a sense of optimism that the economy is bound to bounce back and emerge stronger. However, there is an urgent need for another stimulus package from the government to boost demand. The International Monetary Fund (IMF) had projected India’s GDP to contract 10.3% this fiscal while the Reserve Bank of India had last month said that the economy was likely to contract by 9.5%. The global rating agencies too had made gloomy predictions. Now that the economy is showing signs of coming back on track, the question is how to promote domestic investments and manufacturing.
The revival of business activity, coupled with a decline in the daily average of Covid-19 cases across the country, has raised hopes of a steady economic recovery. Global firms are opening up their purses for direct as well as portfolio investment while a vaccine breakthrough is also on the horizon. The performance of sectors like automobile and consumer durables is well above market expectations. What is needed now is ample income support for households and firms so that the recovery is not hamstrung by excessively damaged balance sheets. The Centre needs to step in and increase public spending to stimulate demand and push for efficiency-enhancing reforms. The Rs 21-lakh-crore ‘Aatmanirbhar Bharat’ package, unveiled by the Centre in May, was not enough to rescue the country from the immediate effects of the pandemic-triggered slowdown. In fact, it has failed to boost demand. Though the monetary policy is accommodative, the credit transmission needs to improve further to benefit the borrowers. There is a strong case for stepping up expenditure on programmes that support the poorest sections who have suffered the most and on infrastructure projects. Public expenditure must focus on health, food and income support for vulnerable households, and support for small businesses.
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