Atmanirbhar 3.0: Not much by way of real stimulus

The third tranche of the government’s economic recovery package, or Atmanirbhar Bharat 3.0, is expected to provide a potential boost of Rs 2.65 lakh crore spread over a few years. The lion’s share of the package is taken by an industrial policy of almost Rs 1.46 lakh crore, Production Linked Incentives. This policy aims to provide fiscal support over time to handpicked firms in areas where the government is trying to boost domestic competitiveness. Overall, this third package indicates we are unlikely to see much by way of fiscal stimulus this year.

A fiscal stimulus represents fresh, discretionary spending or tax cuts to provide economic support. In September, the government finalised its borrowing plan for the year and has since signalled that it’s disinclined to top up. This means that most of the changes announced represent a shift in prioritisation of spending for the year, or calibration of the existing schemes to allow for greater synchronisation with RBI’s monetary stimulus. In this context, measures to incentivise real estate sales and add to the list of stressed sectors eligible for credit support make sense.

The flexibility of response in response to an unprecedented situation is welcome. But the slow pace of government spending when private demand has shrunk is a puzzle. Data from the Controller General of Accounts shows that at the end of the first half of the financial year, total government expenditure at Rs 14.79 lakh crore was lower than the previous year in absolute terms. The situation was worse when it came to capital spending, which at Rs 1.65 lakh crore is lower by 13%. In the wake of a collapse in aggregate demand, what really counts is the government’s failure to step up its spending to partially offset it.

This piece appeared as an editorial opinion in the print edition of The Times of India.


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