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India's own 'New Deal' moment

India's own 'New Deal' moment

India's own 'New Deal' moment

Winston Churchill's famous statement, 'Never let any crisis go in vain', is often discussed in all the economic commentaries on the current situation arising due to the COVID crisis. But it also contains the important message that in such a challenging situation, ideally, policy-makers should come out of the traditional understanding and come up with completely new solutions relevant to the present times.

The question of billions of rupees is how big a relief package is really needed to save the Indian economy from turning into a black hole? All the suggestions placed before the government are given in the table 'Key components of the relief package'.

The estimated package of around Rs 30 lakh crore is about 14 per cent of the country's gross domestic product (GDP). At present, the Indian economy needs intervention on such a large scale. It is clear from this that moving forward on traditional methods is not going to make any kind of thing.

Now the question arises from where the settlement of 30 lakh crore rupees can be done? According to me, resources for this can be mobilized like this:

Four per cent amount can be raised by increasing the fiscal deficit of Union Budget

National Renewal - First phase (until October 2020) should be created and five per cent amount should be raised

National Renewal - Five per cent amount should be arranged through the second phase (November 2020 to March 2021)

In my article published last month in this newspaper, I said that the National Renewal Fund (NRF) would be a historic initiative in itself. It would be very much like the 'New Deal' program introduced by Roosevelt in the 1930s or the 'Marshall Plan' to rebuild Europe after the end of World War II.

The NRF will be a fund set up for 50 years with a moratorium on repayment for the first 10 years. Thereafter, this fund can be gradually increased by levying 1-2 per cent cess on all direct or indirect taxes or other creative means. (Informal discussions with credit rating agencies indicated that they too might welcome this new thinking plan as a credible initiative to bring the economy back on track.)

The government can arrange 60 per cent of finance for NRF by raising borrowings from the domestic market. And the remaining 40 per cent of the amount can be arranged through development finance institutions having a friendly attitude from the international market. In the same way, as for the bullet train project, one lakh crore rupees have been raised from Japan for 60 years at 0.5% interest.

But we have to keep in mind that half-hearted efforts in this direction will not be of any use. The Great Economic Recession in the early 1930s laid the groundwork for Roosevelt's New Deal program, in which the effects of large-scale public works and financial reform programs were felt by the American economy for decades to come. Hence the main emphasis in NRF should be on running a highly effective public works program. Its scope should include projects that can generate large scale employment in remote areas of India.

But what kind of public works are we talking about?

These projects should be such that they will create a permanent asset and generate a multi-layered effect, besides generating employment on a large scale.

Health infrastructure needs to be re-constituted- If COVID has done one thing, it is that the state of health infrastructure in a country can make a difference in life and death of the people there.

Opportunity to benefit from changes in global supply chains - In the post-COVID epidemic, companies in the world are looking to reduce their risk by moving their manufacturing and value chain activities from China to another country. In such a situation, this is a great opportunity for India to attract some part of this investment.

In my opinion these five types of public works the program can be effective to fulfil these objectives:

Coastal Economic Zone (CEZ) 

14 such areas were identified in the Sagarmala project to create highly integrated logistic and manufacturing centres that have close contact with international shipping. These projects serve the purpose of attracting foreign capital to the government and for investors looking for alternative investment destinations outside of China. The CEZ should be kept away from all the negative things related to doing business in India with the upgraded version of Special Economic Zones (SEZs).

River Linkage Project

The idea of   connecting high water rivers with low water availability has been in the news for decades. There have been strong arguments about the ecological and environmental impacts of such a huge project, but it is also clear that given the increasing urbanization and growth in the coming decades, the water infrastructure to meet the huge increase in water demand There is a need for large scale investment in the region. India can move forward on the lines of the Tennessee Valley Authority designed to connect rivers in the US under the New Deal Project.

Creation of new state capitals 

The COVID crisis has severely affected large metros. This has led to the fragmentation of large urban areas and the spread of urban growth outside big cities as a good idea. This is good not only in terms of health but also in terms of reducing the economic disparity between regions. If new capitals are constructed in states like Maharashtra, Uttar Pradesh, Bihar and Karnataka, then both these objectives will be fulfilled.

Water from the tap 

This project, brought by the government to ensure water supply to all by the year 2024, will also have such an impact that it will be felt for decades if successfully executed.

New AIIMS Hospital 

The All India Institute of Medical Sciences (AIIMS) of Delhi was built in the Nehru era, but even after so many years, the same hospital is on top in terms of healthcare. The time has come to expand the thinking of constructing AIIMS hospital outside Delhi as well and the proposal for construction of 22 such hospitals across the country should be implemented at a rapid pace. It is a project that is also favourable to the post-corona need of providing quality healthcare at a low cost.

This is certainly India's own 'New Deal' feeling in history and Prime Minister Narendra Modi announced a relief package of Rs 20 lakh crore equal to 10% of GDP on May 12, trying to grab this opportunity with both hands.

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