International Monetary Fund (IMF) chief economist Gita Gopinath has said India needs to provide more direct funding to the urban poor or migrant workers to ensure speedy economic recovery.
Gopinath, who's also the John Zwaanstra Professor of International Studies, believes the recent passing of three new labour codes and farm reform bills will provide jobs, some direct support and pave the way for more demand while strengthening supply chain.
The 48-year-old Indian origin economist believes the Indian government should not discontinue the schemes started to provide relief to poor people during the lockdown. "..In terms of the size of the fiscal package that has been deployed, it is quite considerable at 7 per cent of the GDP. But the portion that is in the form of direct spending is a very small fraction of that. A lot of it is based in the form of liquidity support measures, credit guarantees, loan guarantees, and much less in the form of direct spending, which will put the direct income in the hands of lower-income households and SMEs. I would say that we need to more in the direct spending component. And you can also do that by expanding the coverage by providing the income by covering urban poor and migrant workers...also we see the scope of further easing of policy rates. The third piece of advice would be to spend on public infrastructure projects," Gopinath said.
She also disapproved the idea that countries should go for monetisation to fund economic recovery because it leads to a loss of market confidence. She said there are certain worries about non-banking finance companies and rise in corporate debt amid the COVID-19 pandemic. On India's Atma Nirbhar Bharat push, Gopinath said a country can only become a successful exporter if it becomes the part of the supply chain.
Notably, after imposing one of the strictest lockdowns in the world, India had offered cash and free food to poor and migrant workers.
In its World Economic Outlook report released on Tuesday this week, the IMF said the Indian economy will contract 10.3 per cent in the financial year 2020-21 as the country gradually climbs out of the coronavirus-induced lockdown.
This projection is substantially lower than the 4.5 per cent de-growth predicted by the international financial institution back in June, indicating challenges to economic growth as the pandemic continues to spread and claim lives.
IMF, however, projected the Indian economy will deliver an impressive recovery in the next fiscal with 8.8 per cent growth, higher than the 6 per cent growth rate it had predicted in its World Economic Outlook for June.