Govt stimulus to boost economy in the works

Putting more money into the hands of consumers this festive season, easier loans to SMEs and expediting disinvestment are among the steps being considered as part of a stimulus package to dig the economy out of its deepest slump in three years, according to officials.
Also on the menu are measures to encourage domestic investments and provide more money for rural infrastructure and affordable housing, they said.
Chief Economic Advisor Arvind Subramanian has been tasked with preparing details of the pressure points facing the economy and the probable remedies.
The finance ministry officials said the government recognises that liquidity is a problem but is undecided on easing the target of shrinking budget deficit to 3.2 per cent of gross domestic product (GDP) in the current fiscal from 3.5 per cent the previous year.

Policy makers are aware that easing stress and giving consumers more money to spend is the need of the hour and that policies have to be put in place before the festive season.
Private consumption demand is low and one of the suggestions before the government is to cut tax rates or increase threshold, they said adding these are only proposals and no view has been taken on them as yet.

With lingering impact of demonetisation of 86 per cent of currency in circulation and implementation of Goods and Services Tax (GST) resulting in India losing its fastest- growing major economy tag as GDP growth slipped to a three- year low of 5.7 per cent in the April-June quarter.

Officials said with limited resources and no windfall expected out of GST, the government is working on measures that will spur investment and create jobs for the swelling workforce.
However, the government expects the situation to stabilise in three to four months and does not see fiscal deficit to be breached.
The government is looking at monetising some of the rail assets, besides Air India, and fast-track disinvestment of government holding in bluechip PSUs to increase non-tax revenue.
Also, South Korean companies are keen to develop rail track in India and if that money comes in, government spending on railways could be trimmed, the officials said.

Stating that sluggish exports are an area of concern, they said with the rupee strengthening against the dollar what is being contemplated is to make them competitive by allowing them relaxed compliance rules.
By relaxing norms like Bonds and Letters of Undertaking, thousands of crores working capital could be unlocked, they added.
Also being discussed is increasing loan availability for Micro, Small & Medium Enterprises (MSMEs) by tweaking the MUDRA Yojana to allow more funds to them.
Bank recapitalisation is one of the considerations while the government deliberates on measures to revive the economy.
Also, states will be nudged more to lower VAT on petrol and diesel as that would have a trickle-down impact on the entire economy.