Government set to announce fiscal stimulus package ahead of festive season

 

Exclusive | Government set to announce fiscal stimulus package ahead of festive season

MoneyControl   • Sep 25, 2020 12:23 PM IST

By Arup Roychoudhury

    

Centre weeks away from announcing measures aimed at boosting demand and creating jobs. Plans include an urban job scheme and a massive infrastructure push.

The Narendra Modi government is just weeks away from announcing another round of stimulus measures aimed at creating jobs and pushing demand, as it looks to turn around India’s ailing economy which saw its steepest ever contraction in April-June.

These plans could involve a bigger direct fiscal outlay compared to the previous two packages - the PM Garib Kalyan package and the Aatmanirbhar Bharat package - and may include a Rs 35,000 crore urban jobs scheme, a massive infrastructure initiative with emphasis on 20-25 big projects which can be completed this year, and continuing focus on rural job and farm schemes and free food and cash transfers.

“The aim is to announce some measures before the festive season begins,” a top government official told Moneycontrol on condition of anonymity. India’s festive season begins traditionally with Dussehra/Durga Puja. This year, the festivities will start from the third week of October.

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The October-December quarter is the most crucial one for customer facing companies in India, including four and two-wheeler manufacturers and makers of consumer appliances.

Informed sources told Moneycontrol that discussions are at an advanced stage for a job programme aimed at urban and semi-urban areas, which will be on the lines of the flagship National Rural Employment Guarantee Scheme (NREGS). A second official said that the initial outlay for the scheme is being pegged at around Rs 35,000 crore.

Unlike NREGA, however, “it will not require legislative action,” the second official said, and added that a draft cabinet note was being prepared. The scheme is expected to first kick off from tier III and IV cities before being rolled out in bigger urban centres.

The government is also identifying some key projects from the National Infrastructure Pipeline where work can be expedited in order to create more employment. “These are projects where money can be spent this year. Not next year or the year after that. The aim here is to ramp up activity and generate jobs in the shortest possible timeframe,” the first official quoted above said.

The centre’s focus on the rural economy, spelt out under the previous two Covid economic packages, is set to continue as well. The free foodgrain and free cash transfer schemes are likely to be extended.

The current thinking in the government is vastly different from its earlier view of ‘keeping the powder dry.’ Chief Economic Advisor Krishnamurthy Subramanian had said in late-July that the right time for a fiscal stimulus package may be when a vaccine is available.

Now however, the first quarter GDP numbers seem to have convinced the government on the need to spend. “The right time to spend is now. The situation is still uncertain and a vaccine may not be available till the first quarter of the next year. The centre’s biggest economic focus is job creation,” said the second official.

India saw perhaps the biggest fall in GDP in its independent history, as April-June GDP contracted 23.9 per cent year-on-year. Private consumer spending, the bedrock that contributes more than half the Indian economy, got chipped by 27 per cent. But investment, represented by gross fixed capital formation (GFCF), contracted by 47 per cent, their worst fall to date.

There is also a concern that after an initial boost in economic activity in June and July after the lockdown in April and May, as shown by many key high-frequency indicators, things may be starting to slow down a little bit, especially as daily Covid cases show no sign of slowing down, the pandemic spreads to rural India, and states still declare mini-lockdowns. This concern has been spelt out in the Finance Ministry’s last monthly economic report as well as by independent analysts.