The Indian economy has been showing the green shoots in the results of the third quarter. However, the recovery is far from complete. The article suggests the strategy to get to the 5 per cent trend line.

Divergent performance after lockdown

• At the end of the third quarter, the economy is showing a hugely divergent performance.
• Pharmaceuticals and chemicals are showing growth on their Year-To-Date numbers.
• FMCG reached last year’s level in the second quarter.
•  Construction equipment are showing a huge recovery, with record sales numbers in the last three months, driven by rural demand from sales to individuals.
• Capital goods are still sluggish with YTD numbers well down on last year, but are now showing some signs of life.
• In contrast, travel and tourism, real-estate and construction, and retail, are all still at under half last year.
• These are high employment sectors, and salaried employment has correspondingly taken a big hit, with potentially longer term effects.

How to achieve ‘full recovery’

• Full recovery means getting back to the trend line of growth where we would have been pre-COVID.
• We need to aspire to grow 9 per cent for three years, which is what will get us back to our 5 per cent trend line of growth by 2024.
• The recovery underway is solid, but we need measures to sustain and deepen it.
• The government can do three things.

3 suggestions to sustain the recovery

1) Stimulate the economy

• The most immediate fiscal stimulus possible is to put cash into the economy.
• Distribute the pending tax refunds, pay the bills of all companies, pay off the arbitration awards pending where the government has lost cases, and pay state governments their pending GST dues.
• All this will run into a few trillion rupees, and it will be cash that immediately stimulates the economy.

2) Invest in public health infrastructure

• Some preparation is underway to distribute vaccines, but there is need to go much further.
• Centre should finance state government efforts to build an extensive public health network so we are equipped to handle a possible second wave of the virus.
• If we demonstrate that we are much more prepared in February and March 2021 than we were in April and May 2020, we will spread confidence.
• Government should work in partnership with private sector hospitals.

3) Invest in inftrstructure

• There are dozens of projects stuck as funds are not available.
• The 20 trillion infrastructure pipeline needs to have some cash flow in it.
• The COVID crisis revealed awful things about living conditions in slums across our cities.
• We can put in place the right public-private programme to provide decent, accessible housing, with quick and cheap connectivity into our cities.
• This could trigger a building boom that would stimulate demand like nothing else.

How to finance the spending: Privatisation program

• Government can manage the resource for spending through privatisation program.
• Our current stock market boom says that buyers are ready to invest. But public-sector stock values are still depressed.
• The best way to see them take off is to announce that the government intends to reduce its share-holding to 26 per cent across public-sector banks, steel companies, oil companies, and every manufacturing company and hotel it currently owns.
• To avoid opposition to such reforms, we must operate consistent with our democratic institutions.
• We need discussion papers for public comment, the debate in Parliament, hearing out stakeholders, and compromise with the interests of state governments.

Consider the question “What are the measures India needs to take to achieve the complete recovery of the Indian economy disrupted in the wake of the pandemic.”

Conclusion

Unless we act now we will have a stunted recovery. We must use our economic crisis to set some bigger things right. 2021 will be a year to welcome if it returns us to the growth trajectory we deserve.

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