Given that the economy is decisively entering a phase of investment-led growth, the commitment to drive public investment in infrastructure bodes well for the economy in the medium term
NEW DELHI: Investment bank Societe Generale, headquartered in Paris, has proposed five fiscal policy prescriptions to put the pandemic-hit Indian economy back on track, holding that monetary policy in the absence of fiscal policy support can’t move the needle much.
Health infrastructure: At less than 1.5% of GDP, public spending on health ranks among the lowest globally. We believe that the immediate priority should be a quantum jump in public spending on healthcare and allocating adequate funds for research, including continued investment in mass surveillance and genomic sequencing to identify potential virus mutations as well as vaccine research to prevent future pandemic episodes.
Physical infrastructure: The construction sector acts as an important shock absorber for the economy. As the share of agriculture in India’s GDP continues to dwindle, more and more people are leaving this sector in search of jobs. Given the nature of their skillset, construction remains most suited to provide them with employment. Public spending on infrastructure, therefore, remains a sine qua non to absorb millions of workers rendered jobless by the pandemic.
MSME employment support: We believe that providing temporary financial support to MSMEs, aligned to employment retention milestones, could play a crucial role. For companies threatened with loss of business, no amount of liquidity support, loan repayment moratoria or sharing of provident fund burdens can prevent them shedding jobs. They may just about stay afloat with such support, but households at the receiving end of job losses slide straight below the poverty line.
Urban employment guarantee scheme: The rising demand for jobs under NREGA puts into perspective the importance of such employment guarantee schemes to the lives of rural people. We believe that the government should plan for a similar scheme in urban areas (by roping in local municipalities) to help the urban unemployed and prevent reverse migration. This could reduce the spread of infection and help avoid a shortage of workers when the economy reopens.
Migrant worker database: Most migrant workers do not hold a bank account into which the government can transfer funds. The pandemic should act as a trigger for national coordination to build a database so that subsequent catastrophic events can be dealt with appropriately.
"Lack of an appropriate fiscal response has left monetary policy with the onerous task of doing all the heavy lifting for the economy. Of the five major policy prescriptions suggested by us to get the economy back on track, the government has ticked only one box – infrastructure investment. However, given that the economy is decisively entering a phase of investment-led growth, we believe the commitment to drive public investment in infrastructure bodes well for the economy in the medium term," Kunal Kumar Kundu, India economist at Societe Generale said.