Budget should lift pall of fear over economy, not focus on stimulus: Swaminathan Aiyar

Budget should lift pall of fear over economy, not focus on stimulus: Swaminathan Aiyar

MUMBAI: Swaminathan Aiyar, one of India’s leading economists and ETNow’s consulting editor, today said the focus of the Union Budget 2021 should be on removing the “pall of fear” over the economy caused by the COVID-19 pandemic instead of pushing out fiscal doles.

“The biggest stimulus you can give this economy is to lift the pall of fear. People are so scared of the infection…fear is the biggest depressant and ending the fear will be the biggest stimulant for the economy,” Aiyar said in his address to the fourth edition of the
ETMarkets Global Summit. The virtual event, which kicked off on Wednesday on www.etmarkets.com, runs through January 22.

Aiyar believes that ending the COVID-19 pandemic will act as a major trigger in reviving the services sector of the economy, which contributes to over 50 per cent of India’s GDP. Aiyar said the upcoming Budget’s primary objective should be to vaccinate as many people as quickly as possible.

India on Monday began one of the largest mass inoculation drives in the world to provide COVID-19 vaccines to around 300 million essential and frontline workers over the coming months. The government has given an emergency use authorisation to AstraZeneca’s vaccine Covishield and Bharat Biotech’s Covaxin.

“Government has to ensure very rapid rollout of finance [for vaccine] and the vaccine rollout itself,” Aiyar said.

Aiyar also said, “Please do not go for big fiscal stimulus” as he fears that getting the fiscal deficit later will become a difficult task. He also implored finance minister Nirmala Sitharaman to utlisie the opportunity provided by the pandemic to clean the government’s books and come out with the actual picture of the government’s finances.

In recent years, the government has faced flak for keeping its fiscal deficit under check only though off-balance sheet borrowings which has distorted the picture on financial health.

“Get rid of all the fudging and announce what is the full unfudged deficit. In future, we will have a credible Budget with figures that is actually believable for others…return to credibility is important,” Aiyar said. He believes that the finance minister can aim to bring down the fiscal deficit in the next year to 5-6 per cent.

For Aiyar, there are only two major items on which the government needs to spend in a big way – vaccination and recapitalisation of state-owned banks. Aiyar said that the government should look at a one-time recapitalisation outlay of more than Rs 1 lakh crore over the next financial year.

On the tax front, Aiyar said that the government should aim for stability and “please do not change anything”. He also recommended that government will do well to not reduce the cess of retail fuel too soon in order to mop-up as much excess revenues it can from the increase in demand in fuel as the economy continues its bounce back.

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