Will our economy contract this year? Ask economists, goes an old quip, they had correctly predicted seven of the last three recessions. Chastened by such ribbing, many began hedging their forecasts, preferring to put out gloomy numbers only in dribs and drabs, gingerly, as evident during this crisis. To be fair, little is foreseeable on India’s economic front. We have flashes of hope amid clouds of despair. Even cheery news emerges only in bits and pieces. Consider Finance Minister Nirmala Sitharaman’s daily briefings on the Centre’s covid relief package. Over last week, an array of schemes were either rolled out or amped up, and market reforms initiated in several sectors, notably in agriculture and education, even as the roster of eligibility for government help was widened to include vast segments of distress. Our jobs guarantee scheme saw a much-needed hike in its fund allocation. Indian states got higher credit limits. In the business arena, private players were promised wider access to markets dominated by the State, corona-hit companies were offered a further relaxation of bankruptcy norms, and legal penalties deemed too harsh were axed. All this is cause for optimism.
For the bulk of its benefits, the aid package relies too heavily on government mechanisms of delivery and bank disbursals of credit, however. This could impede the speed and extent of its impact. The Centre is yet to disclose its fiscal math, but rough estimates suggest that its add-on expenses this year are unlikely to exceed ₹2 trillion, even if a sizeable proportion of its loan backstops are invoked. This figure appears somewhat consistent with its extra borrowing plan of ₹4.2 trillion, more than half of which might go into plugging a big revenue shortfall. India’s fiscal policy has clearly been loosened since the Union Budget of 1 February, but only slightly. By and large, it stays within the old constraints of money availability, with the stability of India’s currency an apparent priority. This ought to reassure creditors that debts will not be inflated away, bond traders that yields will not get too volatile, and our taxpayers that taxes will not get unwieldy. “We are not splurging," Sitharaman said on Sunday, “We are being responsible."
Yet, what constitutes fiscal responsibility depends on the economic context. Covid-19 has been both disruptive and depressive. The scale of it is so massive, with millions of livelihoods lost and purchases held back, that a downward spiral of demand and supply is now in evidence. The economy is crying out for an instant boost. For this, money must reach would-be consumers quickly, so that they can lift overall demand, reverse the spiral, and multiply incomes across India. This would call for direct outflows from Central coffers in far larger volumes than last week’s outlays. Such an infusion should be free of intermediaries to the extent possible, lest the rigmarole of paperwork gets in the way. Apart from generous payments for work, direct transfers of cash would work best. Yes, it will be costly. And it is never easy to wager trillions on a stimulus that might still prove inadequate. But if it comes good, a prompt booster shot would be well worth the additional debt burden. The reform proposals are good in their own way, but right now, our economy needs the government to take centre-stage as its spender-in-chief. There do exist innovative ways to raise funds. If we go for them, it may ensure that our prospects of a big-bang revival do not end in a whimper.