It can be noted that the government and RBI had responded with a nearly Rs 21 lakh crore stimulus package to help mitigate the impact of the pandemic on the economy. Official data on factory production has not been released for two consecutive months, while consumer inflation has surged.
“What has happened to businesses? Lockdown is lifted, but the demand doesn’t exist. What you are going to see is a bloodbath among MSMEs (micro, small and medium enterprises). Do we need stimulus? Yes!” Pronab Sen, Programme Director for the International Growth Centre (IGC)-India Programme and former chief statistician said during a seminar organized by academic institution SPJIMR here.
He said if the government intends to introduce a package, it has to be done at the earliest because this is the time when the businesses need it the most, and warned that not doing so can stoke inflation by late 2020 or early 2021 as there will be no availability of goods.
Anantha Nageswaran, who is also a part-time member of the Economic Advisory Council to the Prime Minister, concurred, and termed the support to businesses in the first installment as “parsimonious”.
“Sometimes, you have to have a leap of faith and have to take action. This is an action which you can roll back,” he said, while pitching for a second round of stimulus.
He said the government ought to err on the side of being liberal and from a risk management perspective as well, the answer is obviously in favour of a stimulus.
Nageswaran acknowledged that the government may be holding on to some firepower given the events like the border standoff in Ladakh with China, which will push up spends on defence.
Rathin Roy, the director of the Finance Ministry-supported think tank NIPFP, said the government may have hesitated in providing monetary stimulus in the first package and instead promised long-pending reform measures, in a bid to signal that it wants to be hands-off and leave it to business.
If it was so, there is a need to deliver on the promised reforms which can help in the inflow of capital, Roy said, adding this would also mean not listening to bodies like the Swadeshi Jagran Manch (SJM).
Sen said the stimulus measures of up to Rs 1,000 per person per month extended through the direct benefit transfer are not sufficient and stressed that a transfer of over Rs 3,000 is essential if the final aim is to drive up demand as the current quantum of money is only enough for survival.
He also hinted that since a large part of the delivery of a stimulus has to be done by states, the Centre may be a bit hesitant to be very liberal with a package because state governments will stand to take credit for it.
Roy said doubts about the bureaucratic system’s capabilities in ensuring that a package gets executed the way it is intended may have resulted in the smaller stimulus, to which Nageswaran also agreed.