New Delhi: The start of unlock 1.0 phase has brought back the focus on the measures to revive the economy as GDP growth is expected to decline by 25-40% during the first quarter as the country was under a complete lockdown.
The best way is to identify and focus on those sectors that have a large employment creation potential as it will have a multiplier impact on the other sectors of the economy, said Professor NR Bhanumurthy.
“The government needs to understand which sector to revive where it can have large multiplier effect on employment generation,” said NR Bhanumurthy, a Professor of economics at National Institute of Public Finance and Policy in New Delhi.
He said the government needs to pump in more money in these sectors so that it can have cascading impact on the other sectors of economy.
“First it (the government) needs to create jobs which will lead to demand generation that will revive other sectors of the economy and have a positive multiplier effect across other sectors,” Professor Bhanumurthy told ETV Bharat.
Professor NR Bhanumurthy, who has extensively written on the government finances and macro-economic policy issues, says the government should focus on reviving the GDP growth even at the cost of running a high fiscal deficit this year.
Need to focus on labour-intensive sectors
Professor Bhanumurthy says most of the sectors with large employment potential were in bad shape even before the outbreak of the Covid-19 global pandemic.
“Mining, manufacturing, electricity, construction…all the sectors are in bad shape, most of these sectors were slowing down even before the Covid-19. The pandemic has only worsened the situation,” he said, adding that the MSME sector was in a difficult situation from the last three years.
Micro, Small and Medium enterprises, known as the MSME sector, that employed over 11 crore people before the outbreak of the Covid-19 global pandemic, are the worst hit by the nationwide lockdown announced by Prime Minister Narendra Modi to slow down the community spread of the highly infectious virus in the country.
Considering the employment generation potential of the MSME sector, finance minister Nirmala Sitharaman announced a Rs 3 lakh crore collateral free loan scheme for the MSME sector, among other things.
Read more: India's economy to contract by 3.2% in fiscal year 2020/21: World Bank
However, Professor Bhanumurthy says, these measures are not enough.
“If you look at the demand side measures, it’s meagre just Rs 3 to 3.5 lakh crores, which is just 1 to 1.5% of the GDP. This is why some people are asking for a larger stimulus even if it means an increase in the fiscal deficit in the current year,” said the economist.
The demand side measures are aimed at increasing the purchasing power of the common man by ensuring more money in their hands by way of reduction in tax rates, cash transfers and subsidies and also include livelihood security measures such as NREGA employment guarantee scheme.
Improvement in employment situation has a direct impact on the demand for more services and goods in the economy.
On the other hand, the supply side measures are aimed at boosting the production by giving concessions to companies and corporate sector, which involves cut in corporate tax rate or low interest loans to meet the working capital requirement of the industry.
Can Atma Nirbhar Bharat Scheme revive the economy?
While talking about the impact of Atma Nirbhar Bharat scheme on the demand side of the economy, Professor Bhanumurthy says the government has only looked at the supply side issues in the medium to long term while it has not really focused much on the demand side measures.
“This is why some people are asking for a larger stimulus even if it means an increase in the fiscal deficit in the current year,” said Professor Bhanumurthy.
“You need to devise this kind of policies where you still have increase in the fiscal deficit but you have some recovery in the GDP growth. This is the only feasible option we have at the moment. It will generate employment and revive the economy,” NR Bhanumurthy told ETV Bharat.
(Article by Krishnanand Tripathi)
