Economic activity in many sectors and geographies has recovered to the level of pre-second-wave of COVID-19.
In this context, there is a need for a reorientation of the economic stimulus policiesto place India on a sustained 7% plus growth path.
What is the global scenario?
Many developed countries have been widely vaccinated, and are poised for strong growth.
The growth momentum has been strong, particularly in the US and China.
The central banks of many developed countries are likely to begin normalising the extremely loose monetary policies earlier than anticipated.
But there are doubts about the durability of the recovery once the fiscal stimulus starts waning.
However, some smaller global central banks have started normalising their respective Quantitative Easing programmes.
How is the level of recovery in India?
In India, there are signs that the recovery momentum began to strengthen from mid-June 2021.
In line with the market consensus, it is expected that 2021-22 growth is likely to be in the 9-10% range.
Economic activity in July 2021 is likely to have reached well above pre-second-wave levels.
Tax collections, another indicator of activity, even if a bit skewed, support this view.
Corporate tax collections in the April-June quarter of 2021-22 have been strong.
The resilience of large corporates is evident across the spectrum, suggesting that B2B (business-to-business) demand is still strong.
Even GST collections seem to have been quite robust.
What should the priority nowbe?
With developed countries beginning to normalising the loose monetary policies, India will require a reorientation of its stimulus strategy.
It should shift from the largely broad-based measures to a more targeted approach to certain sectors.
This will reduce the risk of overburdening the economy.
This is especially true as inflationary pressures have remained persistent for many months.
What are the measures needed?
Revival of retail consumer demand is critical for sustaining the current economic recovery.
Demand emanating from rural geographies is also important for sustaining the recovery.
Demand for work under MGNREGA suggests continuing stress. Monsoons will be a big contributor too.
Renewed government intervention is therefore required.
Inflation worries are heightened, given the twin impulses of food and crude oil prices.
It could force a monetary policy normalisation faster than presently anticipated.
Access to credit remains a crucial input in the recovery matrix, particularly for small and micro enterprises.
The Union government’s Emergency Credit Line Guarantee Scheme (ECLGS) has reportedly been very effective.
It helps stabilising the solvency (and cash flows) of micro and small businesses.
The expansion of the scheme is probably the most effective way to incentivise credit flows.
Policy interventions are needed to create a more level playing field for smaller companies, especially in the corporate health sector, given the public health crisis.
