Spend now to boost economic growth

Spend now to boost economic growth

Industry is braving disease and worker apprehension to resume work. But what do they resume work for if there is no demand for what they produce? The government must spend money or have it spent, in large quantities, to create the demand needed to fuel vigorous economic growth. True, the government has announced a stimulus package totalling ₹21 lakh crore, a trifle over 10% of GDP. The problem with this is not so much that, of the total stimulus planned, actual additional spending by the government amounts to just about 1% of GDP, as that very little of it is planned for boosting investment in capital formation that would create sustainable demand.

Lending money to power utilities to enable them to clear a fraction of their mounting dues to generators would help keep the power sector afloat, but will not add to investment in the sector. That goes for working capital loan guarantees to micro, small and medium enterprises (MSME), too. Industry’s rate of capacity utilisation was below 70% before the pandemic-induced lockdown and subsequent fall in demand. Industry is not going to lead investment revival through autonomous capacity addition. That leaves infrastructure to do the heavylifting in kickstarting investment. Power transmission alone can absorb a couple of lakh crore investment — and more, if India were to switch over to ultra-high voltage direct current mode. Healthcare needs to be scaled up and imaginative policy can induce the private sector to step up investment. Defence production is yet another area of new capacity creation and production, generating demand for MSME and boosting creation of jobs, income and taxes. But the easiest way to kickstart investment is by designating and funding special vehicles to take over and complete stalled real estate and other projects in the private sector. Swift conduct of auction of coal mines can facilitate investment, too.

But infrastructure investment is not just about identifying projects, it is about creating a bond market to finance such projects, too, and letting pension and provident funds invest in bonds.