Industry, experts seek stimulus 3.0 to tackle second corona wave

Leading economists representing industry, banking, financial and services sector have sought stimulus package 3.0, in absence of which, a second wave of the pandemic and continuation of social distancing and quarantine measures will weigh heavy on India’s growth prospects.

Apart from pure cash transfers, the government could also consider GST rate reductions, especially in the non-essential goods segment, which has the potential to drive demand. Furthermore, some sort of tax waivers could also be undertaken for low-income groups. Alongside, sector-specific measures could also support recovery in a big way, a survey of economists by industry body FICCI has said.

Sectors with high backward and forward linkages such as automobile, construction and housing could be revived without incurring fiscal strain. Steps such as announcing of vehicle scrappage policy coupled with cash rebates, which could be funded by additional GST revenue flowing from higher production, providing a sovereign guarantee on incomplete housing projects should be considered.

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With demand and investment outlook muted, robust government expenditure has been the only saviour. Nonetheless, growth is likely to bottom out post the second quarter of the current fiscal year, a survey of economists by industry body FICCI has said.

Industry and services sectors are expected to contract by 11.4% and 2.8% respectively in 2020-21. Weak demand and subdued capacity utilisation rates were already manifesting into a drag on investments and the Covid-19 pandemic has further extended the timeline for recovery.

Even though activity in sectors like consumer durables, FMCG is gaining traction, the majority of the companies are still operating at low capacity utilisation rates. Labour availability and feeble demand remain major issues for the companies.

Therefore, fresh investments will be difficult to come by in the near to medium term. Also, a significant change in consumption patterns is expected on the back of uncertainty with regard to jobs and income losses, it said.

Economists were asked to share their views on the fiscal stimulus package 2.0 and any additional measures that can be undertaken. Participants were of the view that government measures in Stimulus 2.0 focussed broadly on saving lives and on undertaking deep structural reforms. They, therefore, felt that while the quasi-fiscal measures and structural reforms announced were undoubtedly steps in the right direction, on-ground implementation will take a long time to work through.

A majority of economists believed that the government could have undertaken a more aggressive fiscal stance than what has been announced in the two packages combined.