ROAD TO RECOVERY

Q. Do you agree that the most urgent economic priority for the government is to find ways to stoke demand? If yes, what can it do to engineer this outcome? Or else, what should be the government’s most urgent priority going into this budget?

DHARMAKIRTI JOSHI

Yes. With a sharp slowdown in both private consumption and investment, domestic demand is the biggest casualty right now. A coordinated pro-cyclical monetary and fiscal policy thrust is the need of the hour. The Reserve Bank of India (RBI) has cut policy rate repeatedly and that has transmitted to an extent to lending rates. Yet, credit growth remains anaemic due to risk aversion and weak sentiment. So, now the ball is in the government’s court—to create fiscal space and boost demand.

DUVVURI SUBBARAO

No. The most urgent economic priority for the government is not to stoke demand but to revive investment. We are in the midst of a structural slowdown; treating it like a cyclical downturn and hoping that we will be able to ride it out through a demand stimulus will be ill-conceived and illadvised. What the economy needs is not a demand stimulus but a supplyside response. The government’s priority should be to inspire investor confidence by repairing the twin balance sheet problem and embracing structural and governance reforms. This is a long-haul effort but, as Mao once said, even a thousand-mile journey has to start with the first step.

SAMIRAN CHAKRABORTY

Countercyclical fiscal policy is the need of the hour as the economy passes through a period of both structural and cyclical headwinds to the demand side. While fiscal prudence is an essential component of macro stability in normal times, strict adherence to fiscal targets could become further headwinds to growth when the economy is severely demand constrained. So, there is some merit in considering the option of deviation from the Fiscal Responsibility and Budget Management (FRBM) Act targets of fiscal deficit reduction, but the stimulus needs to be ‘targeted’ and ‘temporary’.

“Finding ways to increase demand is crucial for economic revival. Effective, efficient public spending in critical areas will help”
—TAJAMUL HAQUE

TAJAMUL HAQUE

Yes. The most important reason for the present economic slowdown is deceleration/ decline in the growth of effective demand in the economy. Therefore, finding ways to increase demand would be crucial for economic revival. Effective and efficient public spending in critical areas can help in the revival of the demand cycle. The first and foremost thing is to increase the incomes of farm and non-farm households in rural areas. This is possible through effective implementation of minimum support prices, MNREGA and, at least, doubling the amount of income transfer through PM Kisan from Rs 6,000 per year to Rs 12,000 per