Higher govt spending may boost economy, but challenges remain

Sluggish investments, at a time when capacity utilisation is relatively low, will also keep the job market tepid. (File)

The vaccine may boost consumer confidence and speed up business activity, but the next few years are going to be a difficult time for most Indians, in particular those earning a livelihood in the informal economy.

With the services sector lagging behind, and unlikely to recover quickly, there aren’t going to be too many new employment opportunities.

Sluggish investments, at a time when capacity utilisation is relatively low, will also keep the job market tepid.

The Production-Linked Incentive (PLI) scheme, while no doubt very promising, will take a few years to attract a meaningful amount of capital.

Consumption will stay subdued due to slower hiring, the stunted increase in incomes and the fear of job losses; private consumption as in any way flagging even before the pandemic.

Indeed, the banking sector could see more pain than seems to be the premise right now.

The outlook could be a lot more optimistic if the government was to launch a big bang stimulus; but there’s been little of that so far. Also, the pandemic has exacerbated the risk aversion of banks.

But for the economy to make a sustainable turnaround, weaker businesses, too, must get access to credit. All in all, 2021-2022 will certainly be better time than 2020-21, but the economy is some years away from regaining the lost ground.

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