The government could start with setting up a realistic revenue receipt and deficit target, exclude off-budget borrowing and lay down a revised road map for fiscal consolidation.
Unprecedented circumstances require unprecedented measures. This is likely to be witnessed in the upcoming Union Budget as Finance Minister Nirmala Sitharaman has promised to deliver a ‘budget like never before’. Globally, governments are facing massive policy and operational challenges and are adopting unconventional measures to revive their economy. A Big Bang package of reforms is thus on the anvil.
Expectations are high from the current Budget, which is expected to outline government strategy to revive the various segments of the economy from the severe slowdown caused by the pandemic. Undeniably, the government has a difficult task of manoeuvring the nascent recovery of the economy and managing the fiscal burden, which is expected to remain high not only for the current year but also for the subsequent years. In the current scenario, it would be impossible not only for India but for countries globally to shoulder the pandemic without fiscal destabilisation in the short to medium-term.
Here’s a wish list for the government:
Set a realistic expenditure, borrowing plan
The government could start with setting up a realistic revenue receipt and deficit target, exclude off-budget borrowing and lay down a revised road map for fiscal consolidation. The monetisation of the deficit, borrowings from the overseas market by the central government leaving room for the state governments and private sector to borrow from the domestic market, disinvestment and asset monetization could be the probable avenues for raising funds this fiscal year. This would assuage the concerns regarding the government’s ability to maintain the macro-economic stability owing to excessive borrowing during the current and subsequent years and help in setting long-term goals.
Prioritise expenditure allocation
We expect the government to prioritise its expenditure in three core areas — infrastructure, MSMEs and healthcare. Along with taking measures to strengthen the MSME sector, we expect the government to take measures to reduce the cost of doing business, enhance export competitiveness and place considerable thrust on education and skill development.
Create job opportunities
COVID-19 will lead to an uneven economic recovery across different sectors, industries, and groups of people, with some sectors, segments or groups lagging behind even if India registers a high growth rate this year. This will result in income inequality with low-skilled people being impacted more than high-skilled and high-paid employees, which is something the government needs to be cognizant of. Besides, underemployment has been surging as thousands of workers are asked to work reduced hours or no hours at all. With fewer paid hours of work, median incomes are falling.
Addressing the needs of the upcoming sectors like renewable energy and healthcare and providing more incentives to employers to retain their employees at least for the next two years might help to reduce underemployment and create job opportunities. With COVID-19 accelerating the pace of digitisation and adoption of the fourth industrial revolution, a re-look at the skilling initiatives with respect to Industry 4.0 and making digitisation a mandatory skill development amongst MSMEs would be worthwhile.
The writer is Global Chief Economist, Dun and Bradstreet
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