Loosen the purse strings
As the countdown for the Union Budget 2021 begins, the key challenge before Finance Minister Nirmala Sitharaman, who will be presenting her third Budget, is to reinvigorate the economy battered by the coronavirus pandemic. There is a near consensus among economists that enhanced government spending is the best way to revive a moribund economy. The NDA government had unveiled multiple rounds of stimulus packages last year in the midst of a raging pandemic but the outcomes have been patchy and inadequate. As the economic activity started gaining momentum after a prolonged lockdown-induced restrictions, some sectors have reported notable gains. The Centre must capitalise on these gains to bolster the economy. Restoration and creation of jobs must be high on the government’s to-do list. Increasing infrastructure spending, providing relief to the small and medium businesses and boosting consumption and private investments should be the thrust areas. With private investment and consumption being low, the government must step in and spend more without creating excess inflation. Though conservative and puritanical voices may caution about the danger of soaring fiscal deficit, these extraordinary times demand extraordinary response which, in this case, means that the government must loosen its purse strings and spend generously. Though some sectors are showing signs of revival, the disturbing trend is that the wages and employment are not growing. The loss of incomes suffered by poorer sections following the outbreak of the pandemic has not been recovered. The more prosperous ones have been able to sustain their incomes and savings. Unless this trend is corrected, India will become an even more unequal country.
The pandemic has left the small and medium enterprises reeling under unprecedented distress with nearly 30 million jobs being lost during the March-June period last year and many businesses have collapsed. The Budget needs to accord top priority for reviving this sector which serves as the backbone for employment generation. Though the Centre did take some measures like liquidity infusion and payment of dues to provide succour to the industry, much more needs to be done. Infrastructure is another key area that needs attention. This will not only initiate liquidity into the market but also bolster jobs and growth opportunities for several MSMEs. In the long term, it will also help attract businesses looking at alternative production and supply chain sources other than China to set up shop in India. Consumption is the key to sustained growth. If it is backed by robust employment, it will set the tone for a sustainable period of double-digit growth. Now that the vaccination drive is also gaining momentum, millions of households would be willing to tap into their savings to spend on contact intensive sectors such as hospitality and tourism.
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