Times Of India Editorials : Need to do more

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Lenders have to do the heavy lifting in stimulus plans. This won’t be enough

Prime Minister Narendra Modi’s promise of a Rs 20 lakh crore stimulus, to nurse India’s stricken economy back out of the ICU, certainly grabbed (seize) headlines. But those looking for a ‘big bang’ fiscal package that would significantly boost demand in the economy are still looking, as are those hoping for a 1991-like reforms moment triggered by the magnitude of the lockdown induced crisis. With the second leg of measures following Modi’s announcement unveiled by finance minister Nirmala Sitharaman yesterday, what’s apparent is that the overall stimulus package relies primarily on monetary measures. The government aims to encourage and support lending by different institutions, complemented by some fiscal support.

The heavy lifting therefore has to be done by a variety of lenders who have been under stress even before the pandemic. Given the risk of the economy shrinking (becoming smaller in size or amount) for the first time in four decades, this approach is underwhelming. There will be an outgo of Rs 3,500 crore to help migrant workers access foodgrains for the next two months. Farmers will get more access to credit. The ongoing project to have a national ration card has been given a new timeline.

An important part of Modi’s vision revolved around making India a highly competitive economy. Land, labour and laws were handpicked as areas for big reform. In this context, Sitharaman’s observations about the ongoing labour code reform in Parliament send ambiguous signals. The government aims to have a universal minimum wage and put a national floor to it. This is an impractical idea which will make labour laws even more rigid, and hurt poorer states hoping to attract investment. It’s hard to reconcile (restore friendly relations between) this measure with UP’s BJP government wanting to suspend most labour laws for three years.

India needs all the changes outlined by Modi in his speech. But expansive visions must also be carefully thought through – the devil lies in the details. If we are going to turn Covid into an opportunity, for example, do we have plans to build SEZs working on the scale and efficiency of Shenzhen or Pudong? States, which deal with most development issues, depend on average for 50% of their revenue from central transfers. With tax projections and budgets going awry, states need assistance soon. This is essential for them to get reforms moving as otherwise political capital will be expended in dealing with social turmoil. The pandemic has caused enormous disruption. The government’s response must be proportionate to the damage.

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