Union Budget: Effective implementation of policies should be the focus to aid growth

Going forward, the expectation would be to ensure efficient implementation of the policies that help in supporting the virtuous cycle of demand, investment, and jobs.

"We believe the economy may be poised to accelerate in the next two years."

By Rumki Majumdar

The surge in infections since the start of the new year has put the spotlight back on the economy’s ability to endure another wave. While the current uncertainties may be worrying, according to experts, the new variant has shown milder symptoms and lower average hospital stays. That gives us the confidence that the third wave may not impact the economy as much. 

We believe the economy may be poised to accelerate in the next two years. The pace of vaccination has been impressive and reports suggest that the infection has been milder amongst those who were vaccinated. This will likely boost consumers’ confidence to live with the pandemic. The upper-middle or higher-income households that have been relatively less financially affected and are sitting on excess savings are urging to spend. Over the past two years, businesses have improved their balance sheet health. This pent-up spending urges will kick in a virtuous cycle of consumer spending and capex investment. Improved job prospects will prompt migrated labours to return from their natives in search of a better income, thereby improving rural income. 

However, the recovery is likely to be uneven due to subsequent waves, with some sectors facing structural challenges. Uncertainty will weigh on the rebound of the services industry with the hospitality, leisure, travel, and entertainment sectors witnessing gradual recovery because of social distancing practices and calibrated intermittent localised lockdowns. Similarly, low and semi-skilled labourers will likely struggle to get jobs. The pandemic has increased the digitisation pace because of which, there has been a structural shift in the job market and opportunities. Some jobs are high in demand and the talent required to fill these positions are commanding higher wages. On the other hand, several older jobs may not come back leaving a sizeable number of people out of the recovery.

Again, the rising cost of production owing to supply disruptions, worldwide shortages of raw materials, and rising transportation and logistics costs due to intermittent lockdowns are creating inflationary pressures. We expect prices to rise over the next two years. A similar phenomenon is being experienced in the US and EU, where a strong rally in demand is met by supply constraints because of supply chain disruptions and shortages. 

These are a few challenges that the government will have to address head-on in the upcoming budget. Throughout the pandemic, the government has proactively announced a series of reforms and schemes to help the economy to deal with the pandemic. Be it the scheme to support the MSMEs, the pandemic-hit sectors, the lenders, and the citizens, or increased focus on infrastructure spending, measures have been exhaustive given the limited resources the government has been working with. 

Going forward, the expectation would be to ensure efficient implementation of the policies that help in supporting the virtuous cycle of demand, investment, and jobs. The launch of the Gati Shakti platform in October suggests that the government has already initiated efforts to integrate planning and implementation of projects (in this case, infrastructure), with a focus on expediting works on the ground, saving costs, and creating jobs. We expect similar efforts during the upcoming budget. 

The other priority should be to support the sectors that are reeling from the pandemic. The government must introduce legislation to help critically impacted hospitality and travel industry to get back on their feet. Be it tax credit or support programs to stabilise jobs, the government will have to allocate resources towards these sectors to help them endure till the pandemic lasts. 

Exports have done well and we expect the government to emphasise cross-border trade and investments. With several FTAs queued up in the near term, the focus must be on short-term as well as long-term measures to boost exports from and encourage FDI in sectors where India has a competitive advantage. Finally, there has to be more allocation towards building health infrastructure and preparing the workforce for the future through training and skill development. 

The government has to step in to contain the inflation rise in coordination with the RBI. The government will have to keep a check on its overall expense in the medium term and focus on the quality of spending.

(Rumki Majumdar is an Economist with Deloitte India. Views expressed are the author’s own.)

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