Scope to ration govt expenditure

Scope to ration govt expenditure

The economy is behaving as many had forecast it would, tanking. It will recover, if further lockdowns do not come in the way. The government can, and must, give it the boost it requires. Private industry is not going to invest in expanding its capacity without capacity utilisation improving: it was well below 70% even before the pandemic.

The only sector that can absorb investment is infrastructure. And here, the government must prioritise carefully. The Prime Minister announced fast roll out of the water mission, and expanding the health infrastructure. This is absolutely the right thing to do. Even in these sectors, clever policy can avoid the need for the State to fund the entirety of the needed investment.

If healthcare is funded through a mechanism that pools and prepays all expenditure but providers are paid not for treatment but for keeping people healthy and taking care if they do fall ill, in return for a per-capita premium, it would align incentives and prevent wasteful investigations, procedures and treatments. In such a system, government funding can act as the risk- minimising element that can draw in private funding and social impact capital in a model of blended finance.

At the same time, the plan to extend optical fibre to all six lakh villages would be misplaced. New internet services are coming up in the form of giant networks of communication satellites in low earth orbit (LEO) — Elon Musk’s Starlink project has permission to launch 12,000 such satellites, and other entrepreneurs are warming to the idea. India is used to satellite communications, bank ATMs in remote areas depended on them, but of the variety using geostationary satellites way up in space.

The new LEO networks are likely to be cheaper, faster and more ubiquitous. Complete the BharatNet project of connecting 2.5 lakh panchayats with optical fibre, see the viability of LEO satellites for comprehensive connectivity of villages and islands. Investing in goods and services tax (GST) analytics and follow up would yield a sustainable rise in tax collections, besides demand for IT ser- vices in the short term.