As the economic activities are bouncing back after a couple of tumultuous years, there has been a lot of commentary on stabilising growth and the spreading of financial rebooting amongst diverse socio-economic sections. Covid was not the only disruptor because the Indian economy had slowed down before this epochal event. Also with financial irregularities at IL&FS, the NBFC sector was too destabilised. Thus economic activities were in a precarious position.
Presently one must admit the evolving circumstances that involve the government’s cemented push at infrastructural development to crowd in demand and private investment. The budget with a 6 lakh-crore capital expenditure outlay has sounded the bugle of top-down heavy infrastructure push. Along with significant CapEx monetisation of public sector assets to derive embedded value means the government views its role as a creator of significant infrastructure to propel economic growth. All this from the government only fructifies with the private sector romping in with heavy investments. The expectations from the private sector are only realistic as during Covid many large firms have cleared significant debt. The inflow of foreign investments has helped firms in this direction. Thus they are in a much better position than a few years back to lead through investments to build a 5 trillion-dollar economy. It is at this point that I pivot towards my argument of why the private sector is still shying away from heavy investments and under-utilisation of resources.
In my view, it is their unsurety about stable demand that is holding them back. This can be supported by the continuous RBI stance on accommodative fiscal policy although inflation has roared back with the Russian invasion leading to imported inflation and sustained across all sectors. RBI’s reluctance to increase interest rates has been explained by its lack of confidence in diverse long term demands. So what can be done to generate sustainable demand so that investments follow to gain economic momentum as before the 2009 financial crisis? I suggest that the government implement an income support policy, not for the most marginalised or rural poor but rather for the urban poor and humongous working-labour class. This might be off-putting for many although my reasoning for this policy stems from the fact that urban vulnerable and poor as a section have been ignored by successive governments in policy-making. Also propelling the demand for this section will provide a manifold return. The present ruling government has already laid a foundation with Shram Suvidha portal which has had over 25 crore registrations of the migrant workforce working across urban India. Building on this platform the government can provide direct monthly income support to this huge populace. This policy entails direct demand generation from urban people who will have the option of a wide range of goods and services to avail and hence kickstart economic momentum. Rather than the rural populace who already are beneficiaries of MNREGA and PM-KISAAN, this urban class will propel urban regions as economic powerhouses leading to investments coming forth.
I would also add that the urban poor has been a difficult section to target policies due to their heterogeneity and being migrants their development stokes nativist aggression. The Shram Suvidha portal has quantified their identity into data sets and the DBT process will make it smooth to transfer disposable income to their bank accounts. Lastly, I think this policy does hold immense potential to transfer a humongous population into consuming classes of varied goods and services.
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