The government should consider spreading out its stimulus for consecutive three years instead of providing it for one time, said Pronab Sen, chairman of the Standing Committee on Statics and country director, International Growth Centre, India Programme.
Sen at an interactive session of the Bharat Chamber of Commerce, said, if the government sincerely wants to roll out a stimulus, it has to spend Rs 10 lakh crore or 5% of the GDP in the current year, beyond which it doesn’t have the capacity.
The government should spend Rs 3 lakh crore to immediately pay off all its pending dues and make tax refunds. It should spend Rs 2.5 lakh crore for transferring direct cash benefits to the poor through Jan Dhan accounts. The rest should be utilised for public expenditure in infrastructure, which should be immediately started. Planning out and conceiving infrastructure projects take time, and by the time tenders are issued, its already five months. So, the government should start planning out infrastructure projects immediately to get it crystallised in the coming fiscal, Sen said.
This spending, he said, has to continue for the next year but the government will then have the advantages of cleared dues and some infrastructure projects rolling. In the same way it has to continue in the third year and by the time it would have its own taxes for spending. “Cutting GST will not have a strong effect,” Sen said.
He said, the government without clearing dues and making the tax refunds, would actually block working capital. To this effect banks would become risk-averse further creating blockades to capital mobilisation and production.
“Production has to come back on stream for economic recovery,” Sen said, adding that Indian industry at present was running at an average 60% capacity, which meant too much of money was chasing a few goods, effecting in high inflation.
If the government spreads stimulus for three years, fiscal deficit, estimated at 15% in the current year, will come down to 11% next year and 7% the year next. The economy will also bounce back to 2019-2020 level in the coming fiscal.
If the government does nothing, as it has actually happened so far with a cash component of 0.8% of the GDP in the Rs 20-lakh-crore stimulus, it will take 5 years for the economy to come back to the 2020-2021 level. “ The little improvement that you see in the economy has no guarantee that it will carry on,” Sen said.
He said without the government doing anything the GDP growth, which has been -23.9% during the first quarter of this fiscal will come down to -10% in the second and the third quarter but may move to a positive of 1% in the fourth quarter. But from Q1 of the next fiscal, it will be back to negative, he said.
Monetising deficit or printing more money by allowing RBI to do so through an ordinance will only add to inflation. But inflation at present and even at a situation of deficit monetisation will be relevant in the context of wholesale price index and not the consumer price index.
Sen stressed, sticking to FRMB will make the situation worse. The government needs to take some fiscal risk in the shot run and increase public expenditure. “The road to recovery is very very rough,” Sen said.
