Slash fuel tax, raise MGNREGS outlay to spur flailing consumption, suggests Crisil

It moots income support for low-income households hit by COVID-19 shock

January 25, 2022 09:41 pm | Updated January 26, 2022 01:39 am IST - NEW DELHI

KOCHI, KERALA, 01/07/2020: Hard at work MGNREGS workers cleaning a canal at Varapuzha near Kochi on July 01, 2020. The initiative was taken up as the monsoon is expected to get stronger in the coming days. Reports suggest that similar cleaning activity last year had protected villages in the region from flooding. Photo : Thulasi Kakkat

KOCHI, KERALA, 01/07/2020: Hard at work MGNREGS workers cleaning a canal at Varapuzha near Kochi on July 01, 2020. The initiative was taken up as the monsoon is expected to get stronger in the coming days. Reports suggest that similar cleaning activity last year had protected villages in the region from flooding. Photo : Thulasi Kakkat

The upcoming Union Budget for 2022-23 should include higher allocations for the rural employment guarantee programme, a new plan to generate urban jobs and fresh cuts in fuel taxes, to revive flailing consumption demand in the economy, credit rating agency Crisil said.

Households’ consumption, which was already slowing down before the COVID-19 pandemic, remains in the red and ‘would not even have sighted’ 2018-19 levels by the end of this fiscal year, thanks to high inflation and income losses amid the pandemic, Crisil noted in a report titled ‘Undoing the Consumption Shock’.

“With the pandemic affecting low-income segments the most, near-term measures to support incomes and private consumption are crucial to strengthen the bridge to the medium-term growth path,” the agency said, mooting a shift from the Centre’s preference in the last Budget to push growth through reforms and capital spending.

‘Worst hit’

Private consumption accounts for 55% of India’s GDP and is ‘the worst performer among the expenditure-side components of GDP’, lagging 2019-20 numbers by 3% as per the official national income estimates for 2021-22, Crisil observed.

A rise in income inequality and lower allocations for the MGNREGS in 2021-22 had further dented households’ spending power that was already hit by lower income growth, job losses, high inflation in essential goods and services and an uptick in medical expenditure owing to the pandemic. Non-farm wage growth halved year-on-year in April to November 2021 to 3.2%, effectively recording a negative growth once the high inflation was discounted, Crisil chief economist D.K. Joshi and principal economist Dipti Deshpande emphasised in the report.

While the reduction in petrol and diesel excise duties in November 2021 was helpful, consumers could do with more relief now as easing the fuel tax burden ‘will augment disposable income while simultaneously trimming the input cost burden for producers’, it said.

The government should delay a sharp fiscal correction to provide for higher spending on job creation and infrastructure, with a continued focus on supporting rural as well as urban incomes till growth becomes broad-based and demand conditions show sustained improvement.

Prioritising higher allocations for the MGNREGS, which ‘remains the only lifeline for the vast section of landless, informal sector and migrant workers, who have borne the brunt of repeated pandemic waves and lack of employment opportunities in urban areas’, must be accompanied by similar job creation schemes for urban areas.

“The case for a national urban employment guarantee scheme has repeatedly been put forth by experts as well as the Parliamentary Standing Committee on Labour in its August 2021 report. The time is ripe for its realisation,” it underlined.

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