Economy

‘Union Budget should be reformulated to stimulate spending’

AM Jigeesh New Delhi | Updated on April 05, 2020 Published on April 05, 2020

Economist Utsa Patnaik   -  C V SUBRAHMANYAM

Simple monetary measures will not revive the economy; the government should announce a fiscal stimulus, says Utsa Patnaik, economist

Economist and the author of The Republic of Hunger Utsa Patnaik’s recipe for mitigating the present crisis is the reformulation of the Union Budget afresh with a fiscal stimulus and stress on increasing spending to revive the economy. Excerpts from an interview:

 

What’s your view on the unprecedented exodus of migrant workers? What would be your prescription to handle a crisis of this scale?

Clearly, there were no consultations, not even it seems with the Chief Ministers of BJP-ruled States, let alone others. The lockdown was announced with just four hours’ notice. Naturally, the immediate reaction was panic, especially given the experience of the demonetisation.

Roughly, there are an estimated 100 million migrant workers among whom the majority are migrants within their own State. Of these, about ten per cent i.e. close to a crore migrate to distant places. After demonetisation too, there was large-scale exodus of labour back to their villages. The village provides the ultimate sanctuary for people who lose their livelihood in the city. That is where the large number of daily wage workers, those who got paid by the week or by the month, went when the establishments and enterprises they worked for suddenly shut down after the demonetisation. So the Centre has ample experience of the response at the time of sudden loss of livelihood.

But no lesson seems to have been learnt. At least after demonetisation, the facility of public transport was still available. In this instance, everything was shut down within four hours of notice. So, naturally there was panic. This was only to be expected given the experience internationally in any emergency and crisis; there is panic-buying, scurrying back home. People look for safety and familiarity when they find themselves stranded. Even in the US and Europe, supermarkets were deluged because people didn’t know what lay ahead.

The first priority now is to ensure that the level of economic activity goes back to at least the level it was earlier, which was already too low. A prerequisite for that is for the government to not tie its hands down. It should announce a fiscal stimulus at the earliest. The Union Budget in this context provides no succour. Given the slowdown in the economy, the government needed to spend more. It should have increased outlays on rural development, social sector and on small-scale industry to generate demand. They should have focused on increasing demand by expanding purchasing power of the ordinary people – workers, farmers, labourers et al.

Giving tax sops to corporates is meaningless; they already have a sufficiently high income and are not likely to spend if they get additional income. It does not induce the required multiplier effect in the economy. In fact, this has a contrary effect. If income shifts from the lower to the higher income group, it actually reduces the total level of aggregate demand in the economy. The policy direction was wrong to begin with. Instead of giving a stimulus package for the economy, the government opted for the opposite measure of giving sops to big corporates.

How do you view steps such as reducing the loan interest rates?

These are simple monetary measures that are hardly expected to pull the economy out of this mess. What is urgently needed is large-scale spending, a fiscal stimulus and that is what the government is not doing. They seem to have an illogical preference for deflationary policies. No one has questioned the fact that some form of lockdown is necessary, given the pandemic. But it is unfortunate that there was no consultation or planning along with the State governments which actually have to deal with the fallout of the reduced levels of activity, reduced employment, fall in wages and the specific issue of migrant labour.

As I said, the first priority should be to get the economy back on track. The government must ensure free movement of supplies from the rural areas to the cities. Those who have been transporting goods should not be harassed. If they are serious about mitigating the distress of migrant workers, they should be paid MGNREGA wages in advance. The government must loosen its purse strings. It should work afresh on a budget to address the immediate crisis.

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Published on April 05, 2020
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