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Budget FY22 should focus on resolving demand-side issues: Ind-Ra

·2-min read
A contraction in factory output during November shows the fragility of ongoing recovery
A contraction in factory output during November shows the fragility of ongoing recovery

Mumbai (Maharashtra) [India], January 22 (ANI): The Union Budget for 2021-22 should focus on boosting aggregate demand, expenditure reprioritisation and mobilising higher non-tax revenue, India Ratings and Research (Ind-Ra) said on Friday.

So far, the government's major focus to revive COVID-19 battered economy has been on the supply side. "But it is high time to change gears and focus on the demand side as well, lest the ongoing recovery begins to lose steam."

Ind-Ra said there is nothing wrong in addressing supply-side issues as it indeed was needed to restore and augment the broken supply chain -- especially in an economy where micro, small and medium enterprises play an important role in terms of generating employment and output.

However, the absence of adequate demand may jeopardise recovery and may even lead to a second-round impact.

Even if the supply side gets restored on account of various measures announced by the government and the Reserve Bank of India (RBI), it may soon run into difficulty due to the lack of adequate demand for goods and services.

Ind-Ra said the economy has lately shown some green shoots and several high-frequency indicators are reaching the pre-Covid level of production, bolstered by a combination of festive season and pent-up demand.

However, after two consecutive months of positive growth, a contraction in factory output (index of industrial production) in November 2020 shows the fragility of ongoing recovery.

An appropriate demand-side measure therefore is as important as supply-side measures. This includes spending on infrastructure -- especially that are employment-intensive and have a shorter turnaround time.

The government could continue with relief and income support to households who are at the bottom of pyramid. There could be higher allocation to MGNREGS as it provided a safety net not only to rural households but also to the workers who migrated back to rural areas.

Ind-Ra also called for more support to real estate given its backward-forward linkage in the economy -- especially affordable housing segment.

Although a lot has already been done resulting in credit support to the developers and leading to the home loan interest rates falling to its lowest level in over 15 years, the scar is still visible and may require further support on the tax front for a specified period such as GST waiver for under-construction homes.

Micro, small and medium enterprises continue to face headwinds in meeting their financing requirement. Hence, they need and require government support to remain viable and afloat in FY22 as well, said Ind-Ra. (ANI)