The Narendra Modi government should spend its way out of the current economic crisis by unleashing a big infrastructure programme and expanding the scope of the employment guarantee scheme, Kerala finance minister Thomas Isaac said.
A straightforward approach to the economic slowdown is to put more money in the hands of people, he told Financial Express Online in an exclusive interview. Also, the central government should go ahead with its ambitious infrastructure programme laid out by highways minister Nitin Gadkari, the minister said.
"The fiscal constraints to spending is artificial," Isaac said, adding that the current situation needed extraordinary measures.
The doubling the allocation for MGNREGA and extending the employment guarantee scheme to urban areas could put more money in the hands of people, he said adding that this along with easy credit availability for the purchase of consumer durables could shore up the sagging consumer demand.
Indian economy, the sixth largest in the world, recorded 5 per cent growth in the April-June quarter, its slowest since 2014. Indian economy has been growing at 6-7 per cent annually since the year 2000. India surpassed China as the fastest growing major economy between 2014 and 2018, before being set back by the economic slowdown.
Economists attribute the economic slowdown to weak consumer demand and slow growth in investments. The situation is accentuated by a global economic slowdown that has affected almost all major economies. The biggest worry for the government is the lack of jobs for India’s young population. The unemployment rate in the financial year 2017-18 was 6.1 per cent, the highest in 45 years.
"The Union government’s focus has been on incentivising private investment. We are not against that. But the tax cuts given to corporates will not have an immediate impact on demand," Isaac said.
The Modi government has taken several measures including cuts in corporate tax rates and lowering of GST rates to address the slowdown. These steps address the supply side of the economy and may not help boost economic growth, according to economists. The government should take immediate steps to boost consumer demand, they say. The Reserve Bank of India has also cut the policy rates several times to bring down the cost of credit.