Beware, India’s Economy Is On Autopilot by Prof. Gourav Vallabh
Beware, India’s Economy Is On Autopilot by Prof. Gourav Vallabh
When you are unwell, you need a doctor. When your car has broken down, you need a mechanic. When you need 20 off the last over, you look up to MS Dhoni. In crisis, you look to an expert to bail you out. A crisis demands a series of calculated measures that can fetch positive results. Unfortunately, the current economic cockpit is being controlled by pilots who seem to be lost and have left the economy on autopilot for too long, hoping for it to find its own way. The Finance Ministry came up with a set of measures on Monday that they chose to refer as fiscal stimulus package. The only thing worth welcoming about this was the acknowledgement that consumer demand is perhaps at an all-time low and deserves attention.
This is the second fiscal stimulus package that the Finance Minister has announced ever since economic activities came to an abrupt halt due to COVID-19. The natural effect of such an economic closure was on jobs. With 2.1 crore people losing jobs and millions of others insecure about job losses or pay cuts, it is evident that consumer demand will fall.
Although mandatory spending on food, electricity, etc. wasn’t too badly affected, discretionary spend like shopping, gifts, travel took a severe hit. During the first fiscal stimulus announcement in May 2020, as an economist, I expected the government to announce a balanced set of measures to boost both supply and demand. What was disappointing was that although the 20 lakh crore package announced then served well as a marketing gimmick, most of it was focused on credit expansion and debt restructuring. The component of actual expenditure of the government was only close to 5%. The credit rating agencies have shown their assessment of these measures with each agency massively downgrading India’s GDP growth forecast for FY 2020-21 in July-August from their earlier estimates in April-May.
Boosting consumer demand was the key focus of the government in Fiscal Stimulus 2.0, announced on Monday. I strongly argue that comes six months too late. Four major areas that the government has narrowed down on to spur demand: LTC cash voucher scheme for government employees; festival advance of ₹ 10,000; an extra ₹ 12,000 crore to states for capital expenditure; and ₹ 25,000 crore to be spent by the central government as capital expenditure. Firstly, I believe the government either doesn’t understand or wishes to conveniently ignore the essence of a stimulus - which is extra or additional money being pumped in. Moving money from one pocket to another might be appreciated to those who are fans of trickery, but it is a joke as far as fiscal stimulus is concerned. The festival advance is an interest-free loan; it will be deducted from their paycheques in installments. Through this scheme, the government seems to be suggesting credit as the route for liquidity. Through the LTC Cash voucher scheme, central government employees are being nudged to buy goods that draw a larger than 12% GST at a GST-registered store in non-cash form. Also, back of the envelope calculations suggest that if the LTA amount available is ₹ 15,000, to get the entire amount as tax exempt, one would need to spend ₹ 45,000. A real stimulus would have been the decision to go ahead with the Dearness Allowance hike from 17% to 21% which the centre has suspended till June next year.
The other announcement was around providing ₹ 12,000 crore to states for capital expenditure. Although increasing spending through capital expenditure is a welcome move, the question is: how much more money was given to states? A paltry 1.33% more. The states’ total capital expenditure budget for FY21 is nearly ₹ 9 lakh crores. What will a meagre ₹ 12,000 crore do and how will it "stimulate" states to spend more on capital expenditure?
The only onus that the central government has taken is committing on spending an additional ₹ 25,000 crores on capital expenditure, which, by the way, is just a 6% increase over and beyond the budgeted Rs 4.13 lakh crore for capital expenditure. It’s like the king asking his army to win the war but refusing to leave his own den.
The economic growth of a nation occurs on account of three levers: consumption, savings and investment. Credit growth has been stagnant indicating a weak credit demand. On the other hand, deposit growth witnessed a 10.9% rise year-on-year. This clearly indicates that people prefer savings against either investment or consumption - and credit is not the answer to the current crisis.
In order to spur demand, the government must:
- Increase its own capital expenditure to reignite the economy. This will not only push the growth of core sectors but also help create more jobs and allay the fears of uncertainty among consumers
- Clear all pending dues to states which will allow them to further invest, create job opportunities and spur consumer spending
- An unemployment benefit mechanism should be instituted with a separate allocation to push money into the hands of the unemployed
Credit is not the answer at the moment. Cash in the hands of the needy is the need of the hour.
(The writer is Professor of Finance and National Spokesperson, Congress Party.)
Please note that under 66A of the IT Act, sending offensive or menacing messages through electronic communication service and sending false messages to cheat, mislead or deceive people or to cause annoyance to them is punishable. It is obligatory on kemmannu.com to provide the IP address and other details of senders of such comments, to the authority concerned upon request. Hence, sending offensive comments using kemmannu.com will be purely at your own risk, and in no way will Kemmannu.com be held responsible.
Similarly, Kemmannu.com reserves the right to edit / block / delete the messages without notice any content received from readers.
Final Journey of Mrs. Severine Pais (85 years) | LIVE from Milagres, Kallianpur, Udupi

Final Journey of Mrs Lennie Saldanha (89 years) | LIVE from Kemmannu | Udupi

Final Journey of Zita Lewis (77 years) | LIVE from Kallianpur, Udupi

Final Journey of Henry Andrade (83 years) | LIVE from Kemmannu

Final Journey of Mr. Leo Britto (65 years) | LIVE from Mother of Sorrows Church, Udupi

Mount Rosary Church - Rozaricho Gaanch May 2025 Issue

Final Journey of Juliana Machado (93 years) | LIVE from Udyavara | Udupi

Final Journey of Charles Pereira (78 years) | LIVE from Kemmannu

Milarchi Laram, Milagres Cathedral, Kallianpur, Diocese of Udupi, Bulletin - April 2025

Holy Saturday | St. Theresa Church, Kemmannu

Final Journey of Albert Lewis (85years) | LIVE From St Theresa’s Church Kemmannu | Udupi

Final Journey of Bernard G D’Souza | LIVE from Moodubelle

Earth Angels Kemmannu Unite: Supporting Asha Fernandes on Women’s Day

Final Journey of Joseph Peter Fernandes (64 years) | LIVE From Milagres, Kallianpur, Udupi

Milagres Cathedral, Kallianpur, Udupi - Parish Bulletin - January 2025 Issue

Rozaricho Gaanch 2024 December Issue - Mount Rosary Church, Santhekatte

Land/Houses for Sale in Kaup, Manipal, Kallianpur, Santhekatte, Uppor, Nejar, Kemmannu, Malpe, Ambalpady.

Naturya - Taste of Namma Udupi - Order NOW

Focus Studio, Near Hotel Kidiyoor, Udupi


Earth Angels - Kemmannu Since 2023

Click here for Kemmannu Knn Facebook Link
Sponsored Albums
Exclusive
Mangalorean Teen Feryl Rodrigues Shines as May Queen 1st Runner-Up at Indian Club Bahrain [Video]

A Saintly Shepherd of Our Times: A Tribute to Pope Francis

Servant of God – Fr Alfred Roche, Barkur -Closing ceremony of Birth Centenary Celebrations.

"Raav Sadanch" – A Konkani Musical Masterpiece by Young Prodigy Renish Tyson Pinto, Barkur Inspires Youth to Chase Their Passions.

Bishop Rt. Rev. Dr. Gerald Isaac Lobo, Offers the Solemn Thanksgiving Jubilee Mass, in Milagres Cathedral

GOLDEN YEARS, HAPPIER TOGETHER….by P. Archibald Furtado

Parish Level inaugural Badminton Little Flower Cup 2024 held in Kemmannu.

Udupi: Foundation stone laid for the SVP sponsored new house at Kemmannu

KAMBALA – A FORGOTTEN SPORT OF YESTER YEARS…..
