The growth we deserve
Mains: G.S. II & III Social Justice and Issues related to Economy
- It is nine months since India declared the world’s most stringent lockdown, with four hours’ notice, causing massive economic disruption.
- Meanwhile, we have passed 10 million COVID infections in India, the second-highest in the world. And the UK has reported a new strain of COVID that is even more infectious. This has been an altogether strange year.
- Will 2021 be better? What can we look forward to? What should we worry about?
- At the end of the third quarter, the economy is showing a hugely divergent performance. Some sectors are now doing quite well. Pharmaceuticals and chemicals are showing growth on their Year-To-Date numbers. FMCG reached last year’s level in the second quarter and is showing growth in the third quarter, though YTD numbers still lag. The same for two-wheelers.
- Construction equipment — such as excavators — are showing a huge recovery, with record sales numbers in the last three months, driven by rural demand from sales to individuals. Capital goods are still sluggish with YTD numbers well down on last year, but are now showing some signs of life.
- In contrast, travel and tourism, real-estate and construction, and retail, are all still at under half last year, with no one forecasting a full recovery this year. These are high employment sectors, and salaried employment has correspondingly taken a big hit, with potentially longer term effects.
- In sum, GDP is expected to fall around 7.5 per cent for this full year. We will bounce back next year on this base effect. But full recovery means getting back to the trend line of growth where we would have been pre-COVID.
- We must start by setting out a clear growth ambition. Yes, we had a $5 trillion by 2024 target, but that is clearly dead. Let us at least aspire to grow 9 per cent for three years, which is what will get us back to our 5 per cent trend line of growth by the time of the next national election in 2024.
What government can do?
- The recovery underway is solid, but we need measures to sustain and deepen it. The government can do three things.
- First, pay its bills. The most immediate fiscal stimulus possible is to put cash into the economy. Distribute the pending tax refunds, pay the bills of all companies (large and small), pay off the many arbitration awards pending where the government has lost cases, and pay state governments their pending GST dues. All this will run into a few trillion rupees, a per cent or more of GDP, and it will be cash that immediately stimulates the economy.
- Second, invest in public health infrastructure. Some preparation is underway to distribute vaccines, but go much further. Finance state government efforts to build an extensive public health network so we are equipped to handle a possible second wave of the virus.
- Third, invest massively in infrastructure. Roads, ports, logistics — there are dozens of projects stuck as funds are not available. The 20 trillion infrastructure pipeline needs to have some cash flow in it. But there is a bigger opportunity. The COVID crisis revealed awful things about living conditions in slums across our cities that we have ignored for too long. Can we put in place the right public-private programme to provide decent, accessible housing, with quick and cheap connectivity into our cities?
- How will all this be paid for? Announce a huge privatisation programme, and don’t shy away from calling it that. Our current stock market boom says that buyers are ready to invest. But public-sector stock values are still depressed. This is the best way to see them take off is to announce that the government intends to reduce its share-holding to 26 per cent across public-sector banks, steel companies, oil companies, and every manufacturing company and hotel it currently owns.
- Would simply announcing that intent trigger a big rally in the price of PSU stocks? Let’s try with one or two PSUs and see. We have also seen no movement on the budget announcement of listing LIC — raising questions about the credibility of the entire disinvestment programme.
- The government might argue that big reforms prompt big protests — such as those we are witnessing in Delhi on the agricultural reforms. The learning from those protests must surely be that the reforms themselves were right, but the method of doing them needs to be different. We must operate consistent with our democratic institutions. We need discussion papers for public comment, debate in Parliament, hearing out those who would lose out from the reforms, and compromise with the interests of state governments (including those run by the Opposition).