Bold moves, not glib talk, can bail out economy

The government has failed miserably by window-dressing old proposals to hoodwink people into believing that they are the new ones to bail out the coronavirus economy. One wonders how good headlines would change the on-ground situation of the economy!

Global rating agency Moody’s Investors Service has downgraded India’s sovereign rating to the lowest investment grade Baa3 — a development about which the government was most dreadful. With this, the country’s credit profile has fallen back to the level that it was in 2004. Though it would be obvious to blame the coronavirus pandemic for the rating downgrade, Moody’s claimed that its decision was not because of the impact of the pathogen.

The rating agency claimed that slow reform momentum and constrained policy effectiveness have contributed to a prolonged period of slow growth that started before the pandemic and that it expects the same would continue. Though the government had taken steps to boost consumption and support small businesses before the pandemic, Moody’s feels that these steps would not restore the real GDP rates to eight per cent. These comments are a severe indictment of the Narendra Modi government. They are also suggestive of a new policy paralysis setting in the government, where decisions are taken with so much caution that by the time their impact percolates to the ground, the damage would have already been done.

A day after the downgrade, Prime Minister Narendra Modi, however, appears to be full of hope. Addressing a virtual meeting of the Confederation of Indian Industry (CII), Mr Modi said India would get back its growth rate and also promised to roll out more structural reforms. He said he has confidence in Indian farmers and entrepreneurs to achieve the growth again. Such a statement is suitable for those who give inspirational lectures, but not for the leader of the country, who has to lead the country standing in the front. On this count, the government has failed miserably by window-dressing old proposals to hoodwink people into believing that they are the new ones to bail out the coronavirus economy. One wonders how good headlines would change the on-ground situation of the economy! A right media and perception management cannot be an alternative to sound economic policy. So it is high time that the government gets to the real work on the economy.

With the fear of rating downgrade getting past us, the government should fire all engines to support consumption in the economy with fiscal expansion. If the government doesn’t want dole money, it could speed up infrastructure projects like national freight corridors to boost spending. It could bankroll the construction of multi-storied apartments near industrial parks on government lands, which would have a spillover effect on other sectors. It could exit all public sector banks, except perhaps SBI, as the entry of private investors would bring in fresh capital to them. The profit-driven private management would redesign their operations to focus on lending rather than parking all their money with RBI. It should link grants given to panchayat raj institutions on following the government’s cluster-based approach to farming and also on taking steps to set up local level food processing units to improve the income of the farmers.