With the inflation rate hovering above 7 per cent, the Reserve Bank of India (RBI) has limited scope to announce more monetary easing measures. Even before the pandemic, Indian economy was facing a slowdown with GDP growth rate at 4.18 percent for FY20, lowest in the last 10 years. The lockdown led to a negative GDP growth rate of 23.9 per cent in Q1. As per the recent estimates of RBI, GDP growth rate for Q2 would be at -8.6 percent, pushing the economy to a recessionary phase. In such a scenario, strong measures are needed to guide the economy to a recovery path.
Employment generation
In the third stimulus package, Finance Minister Nirmala Sitharaman announced measures to boost employment generation in the formal sector. Under the new ‘Atmanirbhar Bharat Rozgar Yojana’, new employees hired by Employees’ Provident Fund Organisation (EPFO)-registered organisations will enjoy benefits, including subsidy support by way of EPF contributions.
Employment generation in any economy will be in response to how well the economy is performing. If there is an increasing demand for its products or services, companies will add more people to the workforce. In the current scenario, with a weak economic outlook, the government's push to boost employment in the formal sector will only have limited success. The cost borne by the employer in hiring people is likely to outweigh the benefits.
ECLGS
The extension of the Emergency Credit Line Guarantee Scheme (ECLGS) till March 21, 2021 is a welcome step. As per the recommendation of Kamath Committee, 26 stressed sectors would be eligible for collateral free and 100 percent guaranteed loans. This would benefit resource starved sectors in the economy.
However, the risk averse nature of banks could act as an impediment. The banking sector is also in stress due to the fear of rising NPAs. As per the estimates of RBI, NPAs of banks may rise to 12.5 percent by March 2021.
FDI boost
The extension of Production Linked Incentive (PLI) scheme to 10 more key sectors can have a positive impact in attracting foreign investment as well as benefit domestic players. In order to boost rural employment, FM has announced an additional Rs 10,000 crore towards Prime Minister Garib Kalyan Yojana. Increased allocation towards schemes such as Prime Minister Awaas Yojana and equity infusion in National Investment and Infrastructure Fund (NIIF) could have a multiplier effect on the economy.
On the ease of doing business front, performance security on contracts was reduced to 3 per cent from 5-10 per cent. Relaxation of Earnest Money Deposit (EMD) is also a big step towards improving the business climate in the country.
Moving very cautiously in its approach towards economic recovery, the government is mindful of the fiscal deficit figures, and the schemes are designed in such a way to limit the burden on exchequer. Rising fiscal deficit can bring in other unintended consequences on the economy.
Source:-economictimes.indiatimes.com