It is this historical context which faces us today — not a standard recession or downturn (serious though such events are), but the Great Depression and a World War. Given this, the response in this country must be appropriate.
To enable the government to discharge the humongous obligations being placed on it, a stimulus package that would be of the order of 15 per cent of GDP (around Rs 30 trillion) suggests itself.
Illustration by Binay Sinha
This is similar to the size of the stimulus which helped pull China out of the 2008 financial crisis. Such a package could sit in a separate fund — call it a National Renewal Fund (NRF) and financed by long-term government borrowing (with a tenure of 50 years or more), from both the domestic and overseas markets. The NRF should have a moratorium on servicing interest for the first 10 years; and can follow a ballooning structure thereafter, for the next 40 years. Expenditures must be heavily front-loaded over the next few years to have maximum impact. The Fund could possibly be redeemed through a cess on direct and indirect taxes for the next 40 years.
Such a fund would deliberately not be under the purview of the fiscal responsibility and budget management or FRBM
rules — the government and Parliament must understand, as many other countries already do, that this is not a time for fiscal discipline. Critics might argue that we must take a longer-term view but as the disastrous experience of Europe after the 2008 crisis shows — when countries in Southern Europe fell into a vicious cycle of austerity, cuts in government spending, weak growth and falling tax revenue because of a dogmatic adherence to balanced budgets — there is a time for fiscal discipline. A crisis of this magnitude is not that time. Indeed, as history has shown, sticking to fiscal discipline in a time of serious recession can have disastrous economic consequences.
States will play a critical role in the way any such NRF is used and allocated — they are the ones at the frontlines of the battle against the coronavirus pandemic and it is they who, when the immediate impact of the crisis has ebbed, will be best placed to decide which sectors and projects need a big funding push. The NRF can also provide a guarantee mechanism for state borrowing — this is urgently needed since interest rates on state government bonds have been creeping up since the crisis began.
The NRF must not just be about providing relief — though that would be a critical component. It must also be seen as a way of revitalising critical sectors of the economy such as infrastructure and health and building institutions and projects whose impact will be felt for decades. Projects under the National Infrastructure Pipeline announced by the government toward the end of December last year, can be subsumed under the NRF and can be a good starting point for fund allocation.
Again, the New Deal is a model — infrastructure spending was at the front and centre of it. It was under the New Deal that now — iconic institutions like the Tennessee Valley Authority were set up. Other programmes under the New Deal funded projects like the building of roads, bridges, schools and hospitals in hundreds of communities across the United States.
The coronavirus pandemic is proving to be a hammer blow on an already weakened economy. Economic and social tensions are mounting. It is time to act.
It is time to move ahead with a National Renewal Fund, and moving out of within-the-box discussions around the Consolidated Fund of India and the Union Budget.
The author is chairman, Feedback Infra