The Union finance minister’s announcement of stimulus package 3.0 is a timely step. Any moves to create demand and boost the economy that received a body blow during the early months of the pandemic should certainly be welcomed by all quarters. With green shoots of a recovery visible with high-frequency indicators showing an uptick, the RBI has forecast that after two quarters of negative growth, India should be able to post a positive GDP growth in the current October-December quarter.
Any investment in demand creation now would certainly help speed up the process. That said, one must point out that much of the Rs 2.65 lakh crore package announced on Thursday is for the long haul and could have little impact on India’s economy in the present.
The largest chunk, comprising a Rs 1.46 lakh crore Production Linked Incentive scheme for select sectors such as automobiles, textiles, pharma and electronics, is to be spread over five years and in many cases will result in a spur in investments in the years ahead, but not now.
Similarly, the equity infusions in the National Investment and Infrastructure Fund and Exim Bank will help boost infrastructure and project spending in the future with no likelihood of yielding immediate benefits. The scheme to extend credit guarantees to 26 stressed sectors, named ECLGS 2.0, though it would not immediately create any demand, will help keep afloat a number of firms and their large workforce through difficult times, and is welcome.
Incentives to create new jobs by way of subsidies to take care of provident fund contributions are similarly laudable as they would release extra spending power in the hands of workers. Of far more importance is the extra money promised for the National Rural Employment Guarantee Scheme and for building industrial infrastructure and domestic defence equipment.
These would create jobs and certainly spread cheer in the economy by way of circular spending. This would help push demand for goods and services, which is what is needed to bring India’s industry back to
full capacity and rev up its stuttering engines of growth.