Beyond health-related adversities, the pandemic has taken a toll on incomes and, consequently, consumption. The series of nationwide and state mandated lockdowns has negatively impacted business sentiments and resulted in layoffs and salary cuts. The Centre for Monitoring the Indian Economy estimated that at least 21 million salaried jobs were lost during the lockdown. More importantly, there was immense loss of income to contractual and migrant workers and the revenues of small and micro enterprises dried up.
The economy is now showing signs of recovery. GDP growth, which witnessed a sharp contraction of 23.9% for Q1FY2021, fell by 7.5% in Q2 and various macro, micro and high frequency data points have begun to show some green shoots. The RBI estimates that the Indian economy will shed the contraction mode and expand by over 20% in the first half of FY22, largely due to the base effect.
Fuelling growth by boosting base level aspirations
However, in order to fuel this recovery, boosting spending, especially at the mass consumption level, becomes crucial. While the government has announced a series of stimulus measures since the lockdowns were first announced, there has been a change in their essence since then. The earlier packages were more in the nature of a safety net that could protect the most vulnerable sections of society. However, nearer Diwali, the focus shifted to boosting consumption spending and revival of businesses.
The upcoming Union Budget – 2021-22 will continue the new direction of driving consumption-led growth. To make this mission successful, it will need to target both production and consumption in tier 2 and 3 towns and rural India. So effectively, the focus must be on Aspirational India, which includes the teeming masses in far flung regions of the country that seek to improve their lifestyle and take on financial and entrepreneurial challenges to achieve it.
Single vehicle for revival in production and consumption
The NBFC and Micro-finance sectors play a crucial role in supporting both consumption and small and micro level production through financing and some degree of hand-holding.
As business and consumer confidence picks up, spending from expected income could be encouraged through suitable funding. Encouraging digital initiatives of NBFCs and finding ways to support them in offsetting the risks that they face in the wake of the pandemic will be crucial in the endeavour to leverage Aspirational India in the short run.
Other areas that need attention from Budget 2021
Various other initiatives, which are more structural in nature, will be essential to ensure that the recovery is sustainable over the longer run. These include:
- Reforms in agriculture carried ahead from the AatmaNirbhar Bharat mission
- Start-up tax benefit program extended so that profits can be reinvested
- More allocation to Stand up India to finance Scheduled Caste (SC) / Scheduled Tribe (ST) and women Directly or through NBFCs
- To take advantage of shifts in the supply chain, encouraging skilling, reskilling and training, all along the value chain. Incentivising research in all aspects of manufacturing to unlock opportunities and focusing more on entrepreneurs with new skill sets will also go a long way towards creating value. Lastly, supporting suitable online education programmes for students of deprived sections the society will ensure that the imminent demographic dividend can be reaped.
- Improving the ease of doing business, including ease of administration in the tax regime, will support business relocation.
- Last but not the least, the upcoming Budget must continue to focus on encouraging infrastructure spends and increasing the outlays for the social sector.
More than before, it appears that this year, the Budget will be dissected for proposals that impact not just the near-term recovery but significantly shape India’s long-term growth trajectory as well. Most importantly, stakeholders from across the country will be rooting for progress-triggering measures that will positively impact Aspirational India as these will have a cascading effect on recovery and growth at a broader level.
