The Budget Should Revive Demand Cycle, Increase Infrastructure Investment

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Despite recent signs of economic improvement, the harsh reality is that the Indian economy would still contract significantly during the current year. The economic loss due to Covid-19 is estimated to be around ₹ 18-20 lakh crore or around 9-10 per cent of Gross Domestic Product (GDP) this fiscal as compared with the previous year.

This data comes at a time when private investment is hard to come by due to prevalence of idle capacity while state governments are cutting back on their capital expenditure during the uncertain year on the back of a pandemic, according to industry body Confederation of Indian Industry (CII) in its Pre-Budget Memorandum 2021-22.

CII says due to these challenges, there is no option but for the Union government aggressively intervene immediately and invest heavily to lift the economy.

“Unless public expenditure is stepped up, GDP might shrink not just during this fiscal but even in the second and third quarters of FY22 once the favourable base effect wanes,” the CII memo adds.

CII says keeping in mind the economic outlook, the Union government’s spending is the only growth driver at this juncture when other growth drivers — private consumption, investment and net exports — are depressed. “However, there is need to channelise government expenditure in priority areas which are in consonance with (the government’s) developmental objectives and have the highest multiplier effect on the economy,” the industry body says.

Public Investment in Infrastructure

The Union government must support the nascent revival and nurture the green shoots of recovery by catalysing capital investment, especially in areas such as physical and social infrastructure to boost the economy. The economic recovery will in turn lead to job creation.

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“Fiscal space should be created for public spending up to 1 per cent of GDP for investment in infrastructure projects in areas such as road, rail, ports, airports, waterways, urban infrastructure, industrial parks, and freight corridors,” CII said.