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Stimulus aimed at survival, not growth; More needed: Experts

Stimulus aimed at survival, not growth; More needed: Experts

Economists have called for tax cuts on petrol and diesel, wage support to small firms, cash transfers to the poor, and higher allocation for rural job guarantee schemes to boost consumer demand ahead of a likely third wave of Covid-19.

Recently announced confidence building measures such as mass vaccination, bank loans to small businesses, and support to tourism may not be adequate to boost growth, several top economists said.

On Monday, finance minister Nirmala Sitharaman had announced a Rs 6.29 lakh crore stimulus package comprising eight major economic relief measures for growth, exports and employees, a majority of which were in the form of loan guarantee schemes.

“This is not a great boost to growth, but this would help firms to survive, which otherwise they would not have,” said DK Joshi, chief economist at Crisil.

Sunil Kumar Sinha, principal economist at India Ratings and Research (Ind-Ra), said the government should increase Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) allocation to “give a signal that it is pro-poor and pro-people”.

“Policy making should be ahead of the curve and actions should not come as an afterthought,” he said, adding that large-scale vaccination will address the root cause of the problem, namely, widespread infection.

With additional fiscal outgo from the latest announcements limited to Rs 60,000 crore, experts said growth would largely depend on budgeted expenditures and the relief measures would provide a fillip to public spending.

“Firms are not taking credit due to demand constraints. Right now, people need income support more than credit guarantees,” said Bornali Bhandari, senior fellow at the National Council of Applied Economic Research.

Universalising national health insurance scheme Ayushman Bharat would prevent households from accumulating large amounts of debt on account of pandemic-related hospital expenses, she said.

Most experts highlighted the lack of support to urban workers, pointing out that a majority of the services sector was concentrated in urban areas.

Experts felt the tourism industry would be able to better reap the benefits of measures such as providing free tourist visas if vaccinations were ramped up.

As per industry chamber Ficci, there is a need to rebuild confidence amongst the people so that the consumption demand gains traction on a sustained basis.

For support to rural workers, Sakshi Gupta, economist at HDFC Bank, said the government could look at increasing the MGNREGA allocation as demand for such work has increased.

( Originally published on Jun 29, 2021 )

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