- Ways of increasing consumption by focusing on sectors where bang for the buck is maximum
- These tend to be sectors where marginal propensity to consume is higher
- Rs 103 lakh crore worth of projects approved. Focus to finish partially completed projects to spur construction
- The economy will need to wait longer for a big-bang Stimulus II -- at least until the vaccine is out in the market
- Once the vaccine is released and demand comes back with a bang, a push to accelerate that process should happen
A mini-stimulus could be announced as early as the coming festive season beginning next month. India's chief economic advisor K Subramanian told BusinessToday.In in an exclusive chat that some "short term measures" are likely during the festive season to spur growth. With the Gross Domestic Product (GDP) of the country contracting by 24 per cent in the first quarter and experts calling for a second dose of stimulus, this would be a small dose before a big one. The economy will need to wait longer for a big-bang Stimulus II -- at least until the vaccine is out in the market.
"Some short-term measures during the festive season" are likely, says Subramanian, "There could be ways of increasing consumption by focusing on sectors where the bang for the buck is the maximum. These typically tend to be sectors where marginal propensity to consume is higher," says Subramanian. For instance, infrastructure, construction and consumer durables. The CEA said that these measures may have a short push, but they will have a 'steroid effect'.
One key measure can be to double down investment in infrastructure pipeline. "There are Rs 103 lakh crore worth of projects that have already been approved. Focus to finish the projects that are partially completed will spur up construction activity. It will be good quality spending as well because infrastructure has far more spill-over effects," says Subramanian.
He also says the government could do something to spur consumption in consumer durables because these goods are in demand during the festive season.
With exports and private investment -- two vital economic engines -- having failed in 2013, India's quarterly GDP growth had slowed down considerably from nearly 9 per cent to about 6.5 per cent. But it was the drastic drop in consumption -- the third engine -- in the past 6 quarters that crashed the growth to less than half of that now. Now, with govt revenue falling as much as 60-70 per cent during the lockdown, the fourth engine of public expenditure has also come under enormous pressure.
Subramanian, however, believes a V-shaped recovery is currently underway: "If you look at the key indicators it is clear that the recovery is on, which is looking like a V-shaped recovery. V-shaped recovery only means there was a sharp decline and then a recovery. V-shaped recovery doesn't say much about the slope of the recovery. That said, what is still important to keep in mind is that there is still residual uncertainty that one can't deny."
Once the vaccine is released and demand comes back with a bang, a push to really accelerate that process should happen, CEA Subramanian says. Vaccine is important for normalcy to return, he says. "Some say vaccine will come by the year-end, some say by early next year. Even if it happens early next year, that is a couple of months from now, bringing normalcy is critical to reviving demand," said Subramanian.
Meanwhile, former Reserve Bank of India (RBI) governor Raghuram Rajan has said that holding back another stimulus package for later will be a self-defeating. "Government officials who hold out the possibility of a stimulus when India finally contains the virus are underestimating the damage from a more shrunken and scarred economy at that point," the former RBI governor said in a note.
He sees the economy as a patient, and relief in the form of stimulus as the sustenance a patient needs while on the sickbed. "Without relief, households skip meals, pull their children out of school and send them to work or beg, pledge their gold to borrow, let EMIs and rent arrears pile up. Similarly, without relief, small and medium firms -- think of a small restaurant -- stop paying workers, let debt pile up, or close permanently. Essentially, the patient atrophies, so by the time the disease is contained, the patient has become a shell of herself," said Rajan.