Why no stim­u­lus?

The Asian Age - - Edit -

It is dis­ap­point­ing that a stim­u­lus pack­age to ac­cel­er­ate growth was ruled out as the PM’s Eco­nomic Ad­vi­sory Coun­cil seems to have other ideas. There is lit­tle new in the 10 pri­or­ity ar­eas it sug­gested like job cre­ation and a push for agri­cul­ture and so­cial sec­tors. All these were sug­gested ear­lier. Fis­cal stim­u­lus re­quir­ing govern­ment spend­ing on in­fra­struc­ture would have has­tened the pace of re­cov­ery. It would have given a fil­lip to pri­vate in­vest­ment, that has dried up for the past two years. The govern­ment and Re­serve Bank know ex­ports and im­ports are skewed due to a strong ru­pee and ac­tion is needed to re­solve this. A `50,000-crore stim­u­lus would have gone a long way, and put pur­chas­ing power in the hands of peo­ple, spurring pro­duc­tion. Govern­ment spend­ing is a cheaper al­ter­na­tive as it has ac­cess to low-cost funds and doesn’t have to an­swer to share­hold­ers and other stake­hold­ers.

There is noth­ing really sacro­sanct about the 3.5 per cent fis­cal deficit tar­get — it can be breached if the money is spent on pro­duc­tive projects. The US and Bri­tain have deficits of over five per cent.

With­out a stim­u­lus, the econ­omy has to strug­gle till the EAC’s so­lu­tions bear fruit. One only hopes the pa­tient doesn’t die as the right med­i­ca­tion is be­ing de­bated. It seems the govern­ment got cold feet af­ter its dis­as­trous de­mon­eti­sa­tion move and the hasty, flawed in­tro­duc­tion of GST, and thus passed the buck to the coun­cil. But the shoots of growth were vis­i­ble and tweak­ing GST to help labour-in­ten­sive sec­tors would have helped growth and em­ploy­ment to pick up.

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