Need to create demand to revive the economy

Over the last few days, as part of a gigantic Rs 20 lakh crore stimulus package to ease the economic pain inflicted by the ongoing pandemic, the Centre has been announcing a number of relief measures in tranches, which include loans on easier terms for small businesses and farmers besides free food for the poor. While these steps are more than necessary and certainly welcome, there is still a crying need to create demand that could help revive the economy.

Till now, a little over Rs 18 lakh crore worth of measures have been announced by the Centre,  but economists say that steps worth just about Rs 2.8 lakh crore of this money could act as a demand stimulus. Given that roughly half of this amount was already provided for in the Union Budget announced earlier this year, the actual fresh demand stimuli for the economy may be limited to just 0.6-0.7% of the GDP.

Small businesses need payroll assistance to help pay workers’ wages during the lockdown; without this safety net, many of them will be unable to pay wages or forced to lay off the workforce. It is already happening and its direct outcome is the sight of millions of migrant labourers going home from the big cities. Similarly, financial assistance is needed for those independent professionals, engaged as fitters, electricians, barbers, etc., who have lost out due to the lockdown. Giving money to these sectors would go a long way towards helping build back demand. With cash in hand and an assurance that their jobs or livelihoods are not going to be axed, people at the bottom of the pyramid can be expected to spend, helping boost revenues of firms manufacturing virtually everything from bicycles to mobiles to garments.

However, in the ultimate analysis, more jobs have to be created if the economy has to be brought back on the rails. Even before the pandemic, unemployment was rising and the economy was slowing down to a crawl. Spending on major infrastructure and core sector projects by the Centre—whether to build roads or to construct dams and power projects—could be the way forward. It would spread money around in the economy and create fresh jobs, the lifeblood of any growing economy.