Editorial Analysis for 19th November 2020

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The need for ‘maximum government’


Mains: G.S. II, III Polity and Governance, Social Justice, Economy, Environment and Eco

  • The current crisis has provided us with an opportunity to rethink our health, economic and climate policies.
  • In the new set of relief measures announced by the Finance Minister, job creation has moved to the forefront.


  • If we look at the relief measures announced in three tranches under Atmanirbhar Bharat Abhiyaan 1.0, 2.0 and 3.0 – what the government seems to be saying to the people and business is : ‘if you do this, we will award you with this and this’.
  • The ball is being put in the court of those who are suffering instead of the government taking the responsibility of steering the economy out of this turmoil.
  • These measures are made on the assumption that they will induce the business sector to start the virtuous cycle of investment and induce households to increase the consumption.

  • Corporate investment is limited by sales or credit. Drying up of either sales or credit can bring a decline in investment. A revival in investment requires a revival of both. The fact that sales are low means factories are running below the capacity.
  • This, in general, true for both big businesses as well as MSMEs, for the latter, sales/profits are even more binding as a constraint because the pockets of MSMEs do not rum as deep as those of the big fish.
  • As for the households, if there is a cloud of doubt over future incomes, they would not be inclined to take more consumer or housing loans.
  • If I am not sure of a regular salary in the immediate future, which affects my capacity to pay EMIs on these loans, however low they may be, I won’t take the risk of taking a loan.
  • Moreover, even if there were takers of these loans, if the banks are burdened with bad loans as a result of past decisions, they may be wary of releasing credit. In order to increase their margins to cover for these losses, the banks, have chosen not to pass on the fall in the policy rate to the consumers.
  • Banks are functioning well below their capacity in terms of extending credit.
  • On the other, despite a fall in investment, there is consistent growth in the corporate sector’s current assets.
  • What does this mean for the magnitude of the stimulus? Neither do these numbers show up in the government’s books nor in the business or household balance sheets. It means these figures just stay on paper.

What needs to be done?

  • FRBM should be kept in temporary suspension, both for the centre and the states and the government should inject a fiscal stimulus of at least Rs 10 lakh crore and borrow to finance it or, if required, monetise the deficit.

  • This stimulus could comprise free ration and other essentials like oil, soap and cooking gas for a period of six months ; cash transfer till employment opportunities are back; and an urban employment guarantee law.
  • This pandemic has also opened the door to think about climate change. There can not be a better time than this for a Green Deal, which addresses both demand and supply side of emissions as well as acts as the much needed fiscal stimulus which has long term implications.
  • A comprehensive green deal can be planned, partly financed by the government and partly by carbon tax, which not only changes the energy mix of the economy but also makes the poor and the marginalised a part of sustainable development process.


  • This crisis has provided us with an opportunity to rethink our health, economic and climate policies. We can chose to act on these or walk down the beaten path. Whatever we choose, it will be good to remember that the future generations will never forgive us for losing an opportunity to fundamentally change course.

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