Second round of stimulus must be well-timed, economists say2 min read . Updated: 27 Jul 2020, 07:44 AM IST
- Policymakers are evaluating the gradual recovery in economic activity before rolling out a fresh package
- However, industry representatives have urged govt to take immediate steps to boost consumption
NEW DELHI : Policymakers are evaluating the recovery in economic activity amid the covid-induced crisis before rolling out a second round of stimulus and legislative measures to ensure maximum impact. However, industry representatives have urged the government to take immediate steps to boost consumption.
While the Centre assesses high-frequency indicators on the nature of the ongoing recovery, economists said the next round of stimulus should be well-timed. “Further stimulus measures have to be aligned with the requirements and these will depend on how things evolve," a government official said, requesting anonymity.
Finance minister Nirmala Sitharaman said the government has kept all options “absolutely open" and policy interventions will depend on industry response, Mint reported on 21 July. In an interview in May, the FM had insisted that further measures were not ruled out. “I have to see how it develops as we go further," she had said.
Last week, Rajiv Kumar, vice-chairman of NITI Aayog, and chief economic adviser in the finance ministry K. Subramanian had echoed the FM’s views on more measures to support the economy amid a surge in coronavirus cases. With covid-19 cases breaching the 1.4 million-mark, India has reached the third spot in infection load behind the US and Brazil. However, over 902,367 covid-19 patients have been cured in India, with a recovery rate of 63.92%
The US, which tops the list, is also set to roll out a second stimulus package soon.
India Inc. wants the government to announce the stimulus measures soon. With economic indicators such as railway freight, goods and services tax collections and exports showing some recovery, this is the right time to inject a booster shot for demand, said Chandrajit Banerjee, director-general of Confederation of Indian Industry (CII).
Increasing spending on identified infrastructure projects will yield immediate demand gains, while releasing payments due to businesses facing revenue crunch will ensure wages are not held up, Banerjee added.
Under the government’s ₹20-trillion stimulus package announced earlier, small businesses, non-bank lenders and housing financiers were given liquidity support, while rural jobs were created to provide livelihood support migrant workers.
“We can afford another round of stimulus worth 1% of (the) GDP," said Sachchidanand Shukla, chief economist, Mahindra Group. However, timing will be key, he added. “We need to see two necessary conditions for efficacy of the next round. First, some semblance of a peak/plateau of coronavirus infections. Second, the degree of unlock, which is now localized—it must cover at least the top 10-12 states." According to him, unlocking economic activities will be the greatest natural stimulus for the economy, as the lockdowns in economic hubs does not inspire confidence among businesses to shift gears.