Opinion | Stimulus is the need of the hour for a reboot of economic activity

The government of India, under the leadership of Prime Minister Narendra Modi, has proactively announced a nationwide lockdown that has contained the spread of the covid-19 pandemic thus far relatively well. The whole world is commending India’s efforts and bold initiatives that have prioritized “life over livelihood”.

The need of the hour now is to allow parts of the country to start opening up. Governments of various countries have announced economic stimuli aggregating more than $14 trillion. In a ranking of stimulus provided by governments of major economies, India is among the lowest, at 0.8% of gross domestic product so far. The following fiscal and monetary policy initiatives are needed.

Under the ambit of fiscal policy, first, the government should front-load its $250 billion spending plan under the National Infrastructure Pipeline. Second, it should announce a sizeable package to compensate, at least partially, the irrecoverable loss of income suffered by Indian industry, be it big, small, or medium. Third, this is an opportunity for India to position itself as the next global manufacturing hub in sectors such as textiles, food processing, pharma, and metals (particularly steel). Trade, tax and investment policies should be calibrated accordingly to achieve this.

Under the ambit of monetary policy, first, banks must extend term loans and working capital to Indian industry with a government backstop for the first loss up to 25%. The government needs to provide credit protection to the banking system. Second, banks should have discretion and flexibility to undertake loan restructuring aimed at ensuring the stability of operations across several sectors. Third, a sharp reduction in lending rates is imperative. While the policy rate has fallen by 210 basis points, transmission to industry has been less than 60 basis points. Fourth, banks must defer loan and interest payments by at least one year, as industry needs time to generate free cash flows.

The government, and in particular the finance ministry, must not worry about the fiscal deficit, as reviving the economy is the need of the hour, even if it comes at the cost of high inflation, though such an outcome is unlikely. One hopes that the above steps are taken expeditiously and translated into action on the ground to reboot the Indian economy.

Sajjan Jindal is chairman of JSW Group and a member of the governing council of Krea University