Nirmala Sitharaman’s stimulus whets the appetite, but will there be a main course?

The government has come out with a plan to spend Rs 49,675 crore, padded it up with some exhortations to state governments to follow its spending example and some layers of wishful thinking on behalf of Indian consumers, and presented it as a stimulus package of Rs 100,000 crore. Now, all the wishful thinking might not materialise. But assume it does. Even then, for an economy that is more than 200 times as large, the stimulus, at 0.5% of GDP, is paltry. Still, it is better than nothing.

The best that can be said is that it does not prevent the government from mustering some courage and a whole lot more imagination to come out with a stimulus package that actually makes a difference.

The conversion of leave travel concession for civil servants into a payment allowance that can be claimed if the civil servant in question spends three times the travel fare plus the equivalent of 10 days’ salary that she would have normally received on purchases of things that bear a GST rate of at least 12% is not a bad scheme. Sure, it reduces consumer choice, but not by all that much. Car and other consumer durable sales can get some support.

In a similar vein, the government proposes to give its employees Rs 10,000 as a loan that would be recovered later, to be handed out as a prepaid card that has to be used for buying stuff.

Rs 12,000 crore would be given to states as an interest-free loan, for them to carry out capital expenditure. You read that right, no there are no missing zeroes. This is the paltry amount of additional capital spending by the states that the Centre is willing to underwrite.

The Centre is already spending a bit on building up mountain roads and related infrastructure to permit mobilisation of men and materiel along the Line of Actual Control, given the stand-off with China. So proposing Rs 25,000 crore of additional capital expenditure by the Centre on infrastructure, including defence infrastructure, appears a bit like making a virtue out of necessity. But that does not matter. Spending on infrastructure is spending on infrastructure, and will create demand for cement, steel, construction labour, commercial vehicles and so on. It is better than nothing.

There is considerable scope for the government to spend large amounts of money on building new hospitals, buying hospital equipment, building new court rooms, appointing and training new judges, creating a vaccine cold chain (some of the vaccines under development require storage at temperatures significantly below what conventional refrigerators are capable of maintaining) and creating a chain of pathological laboratories.

It could digitise government services, digitise school education across the board. All these would crowd in supplementary private investment as well. The National Infrastructure Pipeline has identified 6,866 projects worth over $1.7 trillion. There is no dearth of investment opportunity in India.

Is there a paucity of capital? Around the world, large pools of savings are struggling with negative yields and promises to pay investors decent rates of return. A fraction of these tens of trillions of dollars needs to be drawn to India, with the promise of assured returns. If the money goes into projects that will raise India’s productivity significantly, that would offer a natural hedge against currency depreciation. If external capital is drawn into well-designed and executed projects, there is little risk of the economy not being able to service such capital inflow.

If neither capital nor avenues for capital deployment are in short supply, what is missing? Courage, imagination and a vision of pushing the nation towards rapid progress would appear to be the answer.

India needs a largish dose of stimulus to come out of the economic slump and create the jobs that young entrants to the workforce seek by the million, not the consolation is something is better than nothing.

The present announcement by the government only serves to whet the appetite. But will there be a main course?

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