Keep rural jobs spending high, says Gita Gopinath
NEW DELHI: India should keep spending on rural jobs high for another year to check a rise in inequality during the pandemic and have a medium-term fiscal consolidation strategy to keep borrowing costs low when the economy emerges from the current crisis, International Monetary Fund (IMF) chief economist Gita Gopinath said on Thursday.
The medium-term fiscal consolidation strategy could comprise effective goods and services tax (GST) collection and a credible divestment plan, she said, in her CD Deshmukh Memorial Lecture delivered at a virtual event organized by the National Council of Applied Economic Research.
Countries where income support during the pandemic has been generous, people were more willing to spend rather than saving for any eventuality of a further wave of the pandemic or lockdown restrictions, she said. Gopinath’s suggestions to the Indian government also include bolstering bank balance sheets and making the insolvency resolution framework more effective. She does not recommend fiscal tightening during the pandemic, which she said would be counter-productive.
Gopinath’s suggestions come as the government prepares to present the Union budget for FY22 on Monday with a focus on offering support to affected sections of the society and economy and to promote self-reliance. Finance minister Nirmala Sitharaman has raised expectations by referring to it as a “never before budget”.
Generous income support in developed economies ensured consumption level held up among low-income groups, Gopinath explained. Most developed nations ensured more than 50% replacement income support to people—that is, the loss of $100 worth of income by a person is compensated by at least $50. Close to 70% of advanced economies provided more than 50% of replacement income support, while in the case of emerging markets, that bar is much smaller at 20% and in the case of low-income countries, it is even smaller, Gopinath said. In the US, the replacement rate was significantly above 1 which meant for a person who lost $100, the support was $110. “This is quite substantial,” said Gopinath.
The government led by Prime Minister Narendra Modi has as part of the stimulus packages, raised spending under the Mahatma Gandhi National Rural Employment Guarantee Scheme by ₹50,000 crore for FY21 besides launching a scheme to incentivize job creation by way of support to provident fund contributions of new recruits.