By Manu Agarwal
The Indian Economy was already in turmoil before the COVID-19 Pandemic. Therefore, to revive the economy, the Govt. introduced ‘AtmaNirbhar Bharat’ package which was against the constrained monetary space of RBI. Today, when we look at economic indicators from over a past few months, they unequivocally display plummeted economy numbers.
Although, the FDI inflows and the gradual opening of the economy has given some momentum to GDP but the fiscal space of the government is still precarious. The Pandemic not only lowered the GST collection of states but also badly influenced the CPSEs. This limits the fiscal space as centre is obliged to compensate the states under GST Act. Moreover, Goverment’s endeavour to increase its revenue through dis-investment may take a hit due to poor economy of PSEs.
Apart from this, India is a welfare state. Therefore, the subsidies borne by the Government in agricultural sector, on electric vehicles and LPG; the expenditure incurred on PDS system and ultimately on defence, squeezes out the economic strength of the government given that the taxes and cesses are failing to bridge the widening gap. This is evident from the recent agreement signed with the IDA arm of the World Bank which provides concessionary loans and the fiscal deficit of about 10% exceeding FRBM limit of 3%.
With the auction of Air India and others in store, Government’s revenue will definitely bounce but would it be enough to meet the demand of new key projects, remains the pertinent question. The surplus dividend transfer of about Rs.1,70,000 crore by the RBI to the government might not occur every year especially in the next 2 to 3 years in view of the mounted NPAs and RBIs efforts to inject capital in them. There is no doubt that the financial reforms like Corporate Tax, FDI in coal and other sectors, redefinig MSME,etc. are intended to provide vigour to the economy but the structural slowdown takes its own pace to reverse itself.
In the midst of this uncertainity and against being in recession during pandemic though for a brief period, instead of taking cautious steps, the Public Projects are being taken up like a shopping spree. Despite certain projects – Chabhar Port, Hambantota Port, INSTC, Electric Defence Grid along the western border, Chennai Vladivostok Waterway Development among others – still hanging in progress; the projects recently unveiled in Kutch, the caricatured Central Vista Project of modernity and those that would soon see the light of the day could get stuck in financing given the current condition of the economy.
These projects may be important and could even generate demand in future but that would be too late. The situation would be such that neither the government will have funds nor the people will have means to pump demand. Incomplete hanging infrastructure is more harmful than none at all.
Therefore investing in people directly is the need of the hour. This would generate demand, revive the economy and increase fiscal revenue.
Ofcourse, there is an option of credit financing or sovereign bonds but their repayment might leave a blot on the economy in the form of vicious cycle of debt. Hence, it would be right by the government to refrain from initiating new projects and concentrate on stabilizing its fiscal space rather than on spending new uncertainities.