LITMUS TEST FOR SITHARAMAN

How far the budget reflects the postulates and broad reasoning enunciated in the Economic Survey - 202021, tabled in Parliament last week, will be known when Nirmala Sitharaman presents the annual Budget on Monday, February 1. In recent years, the survey and Budget have had very little in common. In fact, the surveys have aroused hopes only for these to be shattered by the actual Budgets. Hopefully, this year could be different. For, in the pandemic-hit economy, the counsel of the survey to open wide the purse-strings makes ample sense. Instead of clinging to the old nostrums about deficit financing, Sitharaman should print notes and tell the nosey-parker credit ratings agencies and other deficit-obsessed purists to go take a hike. The huge foreign exchange reserves serve as a huge hedge for a higher deficit. Also, the winning argument for a higher deficit is that should it lead to higher growth would prove self-sustaining insofar as the resulting growth in revenue yields would automatically help pay the bill for servicing the higher lending. The once-in-a-century pandemic calls for an extraordinary relaxation in the usual norms of deficit financing even, for a stressed economy. This year especially, there is a dire need for growth momentum, not only to pay the huge bill for pandemic-imposed costs but to incentivise the sectors still struggling to return to normal after the coronavirus-related lockdown. After an estimated 7.7 per cent contraction in the year of the pandemic, the survey expects the economy to grow at 11 per cent in 2021-22, an assessment mirroring that of the International Monetary Fund. Drawing from the recent India-Australia Test series, when India, after recording the historic low of 36 all out, came back from behind to win the series, the survey talked of a V-shaped recovery. Despite the economy opening up following the near-complete lockdowns, certain sectors remain in the slow lane. Among them is the real estate sector, a huge employment generator, suffering from low demand and excess supply. Infusion of fresh funds and incentives for middle-income groups to buy homes could go some way to pep up the sector. Lack of demand in the economy post-pandemic can be offset by higher government spending, first, in the nation-wide vaccination drive and generally, through much higher infrastructure spending. As it is, the government has had to substantially increase the allocations for the rural employment guarantee scheme and for providing free rations and cash to women and the vulnerable sections. Besides, micro, small and medium-scale entrepreneurs are being given loans on most generous terms, though the fear is that the lenders may have to write-off a large portion of those. Fresh private investment has virtually dried up due to excess capacity and the risk-aversion of the lending institutions. The onus now is on the Government to drive investment through higher deficit and much higher spending on health, infrastructure, defence and on various welfare schemes for the vulnerable sections of the population. Meanwhile, the higher courts should heed the gentle rebuke about the virtual neutering of the salutary bankruptcy code. Habitual defaulters have managed to go scot-free, thanks to the unwelcome intervention of the courts. This should stop.