May 26, 2022

Urgent Need To Water The Green Shoots

By A Special Correspondent
First publised on 2020-10-02 13:40:08

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Should we be heartened by the silver linings in September - GST collections in rose for the first time in 6 months; manufacturing PMI was up by 58.8%, its fastest pace in more than eight years; petrol sales crossed pre-Covid levels; railway freight booking were up by 15.3%; car sales were slated to pick up due to the festive season as evidenced by increased stocks at dealerships across India; and the 157 times oversubscription for the Mazagaon Dock Shipbuilders which made it the most successful PSU divestment in terms of oversubscription - or should we be disheartened by the Centre's decision not to borrow more funds for investment despite a healthy current account surplus and a compelling need to invest in infrastructure to water the green shoots that are showing up in the economy?

Frankly, the Centre's decision to cap the borrowings to Rs 12 lakh crore for the entire year does not make sense in these troubled times. The government needs money to invest in infrastructure. It is not going to come from regular sources as tax collections are down and divestment has not taken off as expected. Extraordinary measures are needed in times which are not ordinary. Never before have factories in India suspended production for two months at a stretch. The stress caused by that has had repercussions in the form of job losses, salary cuts and closure of many businesses. To rectify this, it is absolutely necessary for the government to find the money to invest heavily in infrastructure. The benefits will flow in through creation of jobs, new factories, rise in tax collection and creating a positive atmosphere in which more funds will flow in through better realization for shares of PSUs that are up for divestment.

By putting its entire faith in the inherent ability of the Indian economy to bounce back due to its size and the size of the market, the government is making a big mistake. For, these are not normal times. People have curtailed consumption (the economy was tottering even before the pandemic and demand was low) due to the uncertainty created by the pandemic. The first requirement is to remove this uncertainty. That can only be done if the government starts investing now. Its investments will raise the confidence levels and fill up the order books of core sectors industries like steel and cement. Cascading effect will take care of the rest. Any delay will perhaps see a slump post the festive season. That would be a disaster for the economy that is trying to limp back to normalcy. 

pic courtesy: westernasset.com