Waiting for an economic stimulus

Yoginder K Alagh | Updated on August 13, 2019 Published on August 13, 2019

The Centre may give a push to infrastructure schemes not backed by budgetary allocations

As the Kashmir issue gets raised at the UN Security Council and economic activities are further clogged in the North West, the announcement by the Finance Minister that a stimulus package is being planned comes as a relief. Frankly, I expected this in the Budget.

Delayed onset of the monsoon has taken its toll, which cannot be made up by excessive rainfall in late July and early August. Less preferred crops are grown. The impact on early plant growth cannot be reversed. In fact, drinking water problems and rainfall failures in unirrigated areas have led to farm distress and decline in area sown.

A redressal of these bottlenecks is only to be expected. The RBI’s Monetary Policy Statement was clearly given in the context of an expected stimulus. Expert opinion has expressed the view that the damage had been done. The RBI has reduced its GDP forecast, and the experts in banking and industry even more so. The abysmal performance in the IIP does not come as a surprise.

In fact, a stimulus package now would start showing up only by the end of the year. Meanwhile, there is a limit to reduction in the interest rates. The 35 bps cut, highest since 2010, was just about the outer limit.

The only cheerful news one got was of pension funds, from Australia to Canada, pushing large inflows into Indian paper, obviously enticed by the high interest rate. This to an extent weathered portfolio outflows after the Budget, driven by the higher taxes. But core inflation is still at 3.5 per cent, a cause for slight unease.

Planning needed

What’s the stimulus going to be like? Some infrastructure schemes, not backed by budgetary allocations, may get a push. While large announcements were made for medium-term scheme objectives, the funding aspect was clear only in some cases such as self-help groups. This is likely to be remedied. Investments in rural-urban connectivity infrastructure are an obvious candidate.

The talk on demographic dividends will need to translate into investments. Girls’ education should be a priority. The NSS shows a decline in female enrolment. The stimulus should concentrate on skills. Private sector investment will follow. But all of this needs planning. The stimulus should be a part of a long-term strategy. But planning has become a bad word today.

The writer is a former Union Minister

Published on August 13, 2019
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