Why no stimulus?
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.