Home > Finance > Time to step up public spending: Niti Aayog Vice-Chairman Rajiv Kumar

Time to step up public spending: Niti Aayog Vice-Chairman Rajiv Kumar


Niti Aayog vice chairman Rajiv Kumar said it may be time to take that extra step on spending to support demand and private investment. In an interview, Kumar also told Deepshikha Sikarwarthat he expects the economy to move out of contraction in the ongoing third quarter. Excerpts:

Most experts feel recovery seen in Q2 will not sustain. What’s your take?

I don’t agree. Recovery can and will be sustained during the second half of FY21. However, it is clear that consumption demand alone cannot drive the recovery and needs to be reinforced by investment and export demand for which several measures are in the pipeline. I hope that December will look much better because kharif output has been better than last year and FCI has procured a larger volume of rice than in the past. So, rural incomes are buoyant and will sustain consumer and consumer durable goods demand. In the urban areas, there are some continued uncertainties induced principally by the pandemic behaviour. This may dampen consumption demand to some extent as is evident in the rising levels of bank deposit.

Is there a need for more steps to help this demand sustain?

I think we need to increasingly focus on ramping up investment demand. However, we should note that it will be difficult for the private sector to make substantial investments given the current state of excess capacity and the uncertainty due to the pandemic. Therefore, I think the onus would have to be on public capital spending to achieve the necessary ‘crowding in’ of private sector investment. That will generate the multiplier effect, which can then generate the needed consumption demand as well with the rise in employment and incomes. I don’t think we can rely only on rural demand.

Trends show government spending remained tardy in the first seven months of the current fiscal….

We must keep in mind that fiscal balance also has to be maintained. To that extent, the government is doing very well to err on the side of caution until now. But now that the vaccine is in sight (and) knowing also that consumption demand could be flagging, this might be the time to take that extra step. GST revenues are beginning to rise and so we have some little more revenue space. Having achieved a good balancing act, the fiscal powder has been conserved. Perhaps, this is the time to use it.

And where should this powder be used, considering infrastructure spending takes time?

This is where we need to think through quite creatively on identifying short gestation productivity enhancing infrastructure projects, and also taking the help of the private sector in rolling out that investment. You can identify projects and then if you enable or empower the private sector, then you may find a way to take up such expenditures, which can generate quicker results.

Some experts have said while we look at medium to long-term steps such as infrastructure spending, we may also need some immediate steps to lift consumption demand. What’s your view?

The honourable finance minister has mentioned that they can consider both. I’m sure the finance ministry is looking at those. Some sectors, which have felt a bigger impact of the pandemic, could be selected for such fiscal assistance. Where, as per you, should these interventions be targeted?

Self-employed and professionals seem to have suffered the negative impact of the pandemic more than other segments. So maybe there are some you can identify and give them some support. That might be one area. But I am sure all of this is under consideration of the Ministry of Finance.

An RBI working group has suggested that industrial houses can be given bank licences. What is your take?

I have not seen the report in detail, so I would not like to comment.

Is there a need for a more liberal bank licencing regime?

More competition is surely needed. It is undoubtedly a requirement given that our private debt-to-GDP ratio is merely in the mid 50s—53%. There is clearly a need for ramping up credit availability and access to credit especially to the MSMEs. RBI has rightly and commendably kept the cost of credit low despite the inflationary pressures, which is yet only incipient and could be transitory. There is no doubt in my mind that greater competition in the banking sector will help improve banking sector efficiency and the banking sector’s ability to finance development.

Source link

TAGS , , , , , , , ,
Hi guys, this is Kimmy, I started LicensetoBlog to help you with the latest updated news about the world with daily updates from all leading news sources. Beside, I love to write about several niches like health, business, finance, travel, automation, parenting and about other useful topics to keep you find the the original information on any particular topic. Hope you will find LicensetoBlog helpful in various ways. Keep blogging and help us grow as a community for internet lovers.