Govt considering series of measures to boost economy

The government is considering a series of measures to boost the economy, including offering up to Rs 3 lakh crore in incentives spread over six years to create global supply chains in some sectors, tariff protection to key industries, further relaxation in foreign investment rules, and schemes aimed at the urban unemployed, four people familiar with the plans said.

Various expert groups in the government are working on specific fiscal incentives and policy reforms that are expected to take effect from the third quarter (October-December) of the current financial year to accelerate growth, the people added, asking not to be identified. India’s gross domestic product (GDP) contracted by a record 23.9% in the quarter ended June 2020, making the country the worst performer among major economies that have all been hit by the Covid-19 pandemic.

“These are ongoing reform measures and should not be confused with a mega stimulus package. There is no immediate proposal to announce a second stimulus. In May this year the government announced a ₹20 lakh crore Atamnirbhar Bharat Abhiyan (Self-reliant India Initiative) package, which is already in the works. Some announcements are expected soon that will complement it,” one of the four people, a government official in an economic ministry, said.

Finance minister Nirmala Sitharaman unveiled relief and economic stimulus measures between May 13 and May 17 this year under the Rs 20.97 lakh crore Atamnirbhar Bharat Abhiyaan package , which also included monetary measures by the Reserve Bank of India (RBI).

“The production-linked incentive (PLI) scheme is approved by an empowered group of secretaries and the matter will soon be placed before the cabinet for its approval,” added this person, who has direct knowledge of the matter. The government is phasing out MEIS, an export incentive scheme, as it has ballooned disproportionately without creating export competitiveness, he said. The scheme incentivises large investments and has worked for India in the mobile manufacturing sector.

The government is also considering providing duty protection to select domestic industries from imported finished goods, particularly from China. This could, however, be within the bound rate of the World Trade Organisation (WTO) for a period of five to six years under a phased manufacturing programme (PMP) . The scheme is aimed at sectors such as plastics, furniture and toys, the second official said, listing sectors where exports, especially from China, have hurt Indian industry.

In order to attract FDI in infrastructure and transportation sectors, the government may also announce a series of policy measures in some sectors. This will include private participation in running about 150 passenger trains, over two dozen airports, greenfield steel plants, agricultural infrastructure, renewable power projects, waterways and tourist sites, a third person said.

The fourth person said the government is focusing on inclusive economic growth. “A large part of the ₹20 lakh crore stimulus package announced in May was focused on providing relief to the poor. It has immensely helped the rural poor, especially with their active involvement in MGNREGS [Mahatma Gandhi National Rural Employment Guarantee Scheme]. There is a thinking that a similar employment guarantee scheme could be framed for the urban poor,” added this person.

“Another fiscal stimulus may come only after a thorough assessment of the ground situation – availability of Covid-19 vaccine and de-escalation of tension at the border,” the first person said.

But experts unanimously suggested demand-side measures to boost consumption.

DK Aggarwal, president at the PHD Chamber of Commerce and Industry, said schemes such as PLI and PMP will certainly attract foreign investments as well as motivate domestic entities to expand their production, but more demand-side reforms are required to lift sentiment and encourage businesses to invest.

“The focus needs to be upon increasing consumption expenditure by the government, implementation of ₹111 lakh crore allocated for the NIP [National Infrastructure Pipeline] for next five years… government expenditure through various welfare schemes, and upliftment of the underprivileged through direct benefit transfers, among others,” he added

Divakar Vijayasarathy, founder and managing partner of consulting firm DVS Advisors LLP, said: “The government now plans to expand the PLI to other sectors in addition to electronics. These steps are definitely welcome; however, it needs to balance it with a few demand-side measures. Especially in a low-interest rate regime, the consumption would be generally low. The latest data as well clearly indicates that the demand in urban areas is very poor.”