India must aim for wider consumer base, direct public spending accordingly -Suvodeep Rakshit and Avijit Puri

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published Published on Sep 2, 2020   modified Modified on Sep 3, 2020

-The Indian Express

To achieve economic growth of 7-8 per cent, the government needs to start addressing some of the traditional sore points such as the large infrastructure deficit, the weak financial sector, archaic land and labour laws, and the administrative and judicial hurdles.

India entered the pandemic with declining growth and limited scope for a conventional and large fiscal stimulus. We had noted in an article (IE, January 20, ‘Limited scope for sharp recovery‘) that India’s slowdown was largely a structural demand problem that cannot be addressed through piecemeal aid and transfers. Consumption growth provides limited scope for a sharp recovery over the medium term without exogenous (and often unsustainable) triggers. With or without the pandemic, the prescriptions for long-term growth remain the same — broaden the consumer base by empowering the low and middle-income consumers rather than pushing consumption itself. As India emerges out of the “relief” phase, the policy focus needs to shift towards the “rebuild” and “recover” phase.

India’s real GDP growth prospects are in sharp contrast to the growth seen over the past 10-15 years when it was marked by three phases: First, when growth was driven by domestic investment and global growth; second, the post-global financial crisis stimulus phase, and third, the leveraged consumption phase. The economy is estimated to have lost around Rs 20-28 trillion due to a lockdown, with FY2021 growth likely to be around (-) 11.5 per cent. So, why can’t the government just spend to revive growth?

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The Indian Express, 2 September, 2020,

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