A plan to revive a broken economy 

#GS3 #Economy 

There are clear, implementable steps the Centre can take in fiscal terms to revive the economy and support livelihoods 

  • The Prime Minister has just announced Lockdown 4.0. Despite some resulting increase in economic activity, vast numbers of working people will remain without their regular incomes.  
  • PM also announced a package of ₹20-lakh crore, but this includes already allocated money of ₹6-lakh crore and monetary policy directives to banks and non-banking financial companies.  
  • The announcements by the Finance Minister thus far involve no additional public spending, even though this is urgently required to revive the economy and prevent further contraction.  
  • Here we discuss what the government should do immediately in fiscal terms for reviving the economy and supporting livelihoods. 

Food and cash transfers first 

  • The immediate need is to provide free food and cash transfers to those rendered incomeless.  
  • Providing every household with ₹7,000 per month for a period of three months and every individual with 10 kg of free foodgrains per month for a period of six months is likely to cost around 3% of our GDP (assuming 20% voluntary dropout).  
  • This could be financed immediately through larger borrowing by the Centre from the Reserve Bank of India.  
  • The required cash and food have to be handed over to State governments to make the actual transfers, along with outstanding Goods and Services Tax compensation. 
  • Foodgrains are plentiful, as the Food Corporation of India had 77 million tonnes, and rabi procurement could add 40 million tonnes.  
  • Because of the lockdown restrictions, the multiplier rounds of such expenditure are heavily truncated at present and would not generate as much demand as in normal times. 
  • The cash transfers in many spheres will only enable current demand to continue (such as payment of house rent to continue occupancy) and not create any fresh demand.  
  • When greater normalcy finally allows pent-up demand to surface, output could also expand because of resumed economic activity.  
  • Finally, putting money in the hands of the poor is the best stimulus to economic revival, as it creates effective demand and in local markets.  

Revamp MGNREGA work 

  • The revamped MGNREGS could cover wage bills of rural enterprises started by panchayats, along with those of existing rural enterprises, until they can stand on their own feet.  
  • This can be an alternative strategy of development, recalling the successful experience of China’s Township and Village Enterprises (TVEs).  
  • Public banks could provide credit to such panchayat-owned enterprises and also assume a nurturing role vis-à-vis them. 
  • The change is the palpable unsustainability of the earlier globalisation, which means that growth in India in the coming days will have to be sustained by the home market.  
  • The MGNREGS can be used for this, paying wages for land development and farm work for small and medium farmers; apart from government support through remunerative procurement prices, subsidised institutional credit, other input subsidies, and redistribution of unused land with plantations.  
  • Agricultural growth in turn can promote rural enterprises, both by creating a demand for their products and by providing inputs for them to process; and both these activities would generate substantial rural employment. 

The urban focus 

  • In urban areas, it is absolutely essential to revive the Micro, Small and Medium Enterprises (MSMEs).  
  • Simultaneously, the vast numbers of workers who have stayed on in towns have to be provided with employment and income after our proposed cash transfers run out.  
  • The best way to overcome both problems would be to introduce an Urban Employment Guarantee Programme, to serve diverse groups of the urban unemployed, including the educated unemployed.  
  • Urban local bodies must take charge of this programme, and would need to be revamped for this purpose. 
  • These measures are in direct contrast to those that seek to entice private investors by easing labour laws.  
  • The humanitarian crisis of the lockdown reveals the imperative for more, not less labour protection. 

The ‘care’ economy 

  • The post-pandemic period must see significant increases in public expenditure on education and health, especially primary and secondary health including for the urban and rural poor. 
  • Vacancies in public employment, especially in such activities, must be immediately filled.  
  • Anganwadi and Accredited Social Health Activists/workers who provide essential services to the population, including during this pandemic, are paid a pittance and treated with extreme unfairness.  
  • We must improve their status, treat them as regular government employees and give them proper remuneration and associated benefits, and greatly expand their coverage in settlements of the urban poor. 
  • A combination of wealth and inheritance taxation and getting multinational companies to pay the same effective rate as local companies through a system of unitary taxation will garner substantial public revenue.  
  • They will also reduce wealth and income inequalities which have become horrendous.  
  • A 2% wealth tax on the top 1% of the population, together with a 33% inheritance tax on the wealth they bequeath every year to their progeny, could finance an increase in government expenditure to the tune of 10% of GDP. 
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