24/06/2020 - Indian Economy

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KEY POINTS

·         On the fiscal policy side, pumping money into MGNREGA-type schemes is like an intravenous injection. It puts money in the hands of the rural community, which is a large part of the overall demand.

·         Such a policy has a high expenditure multiplier, besides it also generates a sense of well-being as it creates employment. This large-scale government expenditure necessitates ‘borrowing’ from RBI, which actually is nothing but printing of money, using it for demand generation in a post-lockdown period is appropriate.

·         It is a great opportunity to use this political workforce to go to their constituencies and work towards reviving industries and other supply-side responses. The Members of Parliament should be directed by their Party high command to revive industries to the level corresponding to last year.

·         The issues of MGNREGA, unemployment, farm produce procurement, agricultural produce, harvesting, storing, transportation must be overseen by the local MP, as a special effort, not in the course of business-as-usual. He/she must report in a laid-down format and his/her performance should be measured/rated.

·         MPs should be asked to report progress to a senior functionary in the Party, and the Party should measure this performance through a special cell.

·         This will not only ensure that a large amount of money does not get into the pockets of gram pradhans, but also that a large number of beneficiaries get the money in their hands and make an impact on aggregate demand. The leakage must be stopped.

·         MPs must be made to look after the issues of supply of labour and demand for labour. MPs of surplus areas in Bihar and UP must be willing to lead the charge in encouraging local labourers to go to places where the demand is, such as Tamil Nadu, Maharashtra, Kerala, etc.

·         Only they can do this; no bureaucratic machine will deliver on this front if tasked to. The government, in the meantime, should come out with a migrant-labour-focused scheme to iron out the structural distortion of the Indian economy. We have learned during the pandemic that there is no safety net for migrant labourers, either for protection of wages or for habitation.

·         The idea is to bring the economy on line first, and for this the work cannot be completely left to bureaucrats and officials (big or small), instead politicians, especially incumbent MPs, must lead the charge.

The coronavirus crisis has changed the world completely, with all the economic activity has come to a near standstill. Our govt has taken several measures to bring the economy on line, but the work cannot be completely left to bureaucrats and officials, instead politicians- especially incumbent MPs, must lead the charge.

The intent is to bring back both the demand-side and the supply-side responses. 

>>> How MPs can help restart economic activity ?

• Demand side responses :

- The reduction in the repo rate or bank rate by RBI  does not brings much relief due to weak monetary policy transmission mechanism, thus, the fiscal policy mechanism that is -pumping money into MGNREGA-type schemes is like an intravenous injection for demand generation in a post-lockdown period. 

-  The issues of MGNREGA, unemployment, farm produce procurement, agricultural produce, harvesting, storing, transportation must be overseen by the local MP, as a special effort, not in the course of business-as-usual.

- MPs should be tasked to ensure that a large amount of money does not go into the pockets of gram pradhans, but a large number of beneficiaries get the money in their hands- to make an impact on aggregate demand.

• Supply side responses :

- MPs must be made to look after the issues of "supply of labour" from states such as Bihar and UP and "demand for labour" to states such as Tamil Nadu, Maharashtra, Kerala, etc.

- National Action Group of Parliamentarians  should be formed in partner with venture capital funds to find solutions to the challenges posed in supply side of economy and livelihoods.

- The MPs will help the innovators take the solution to their respective state governments and constituencies. The venture capital firms and impact funds on the action group will take up the most effective and scalable solutions towards a consideration for funding and other support.

>>> Conclusion : 

 To make this initiative even more effective, the govt needs to measures the performance of each MP, which, in turn, could determine his/her eligibility for a ticket next time.

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