India needs a high quality public infrastructure spending which is job rich, said Gita Gopinath, Chief Economist, International Monetary Fun, on January 28.
She said the budgetary outlay for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) must be extended as it could play a critical role in helping poor households and tackling growing income inequalities as a result of the COVID-19 pandemic.
Speaking at an event organised by the National Council of Applied Economic Research, Gopinath also reiterated the need for credible divestment plans in India and bringing in greater effectiveness in goods and services (GST) tax regime.
She said a credible divestment plan would boost the confidence of the markets, adding that the government must keep the borrowing costs low during the transition period.
Commenting on the impact of the pandemic on the wold economy, Gopinath said the World GDP is slated to contract by 3.5 percent in 2020. She, however, noted that the third quarter had seen a sharp rebound in recovery as opposed to what was expected earlier.
She said the global trade has recovered quickly, thus reflecting recovery in manufacturing and retail services. Breakdown in supply chains is therefore not an immediate concern.
She said the economic impact of 2020 lockdown as a result of the coronavirus was much severe than 2008 global financial crisis.
She said when the policies like moratorium on loans will be withdrawn, bankruptcies will shoot up as there will be pent-up bankruptcies which were averted through the moratorium policy.
Gopinath said that 70 percent of the advanced economies managed to provide 50 percent of income replacement support, whereas the emerging economies managed to provide an income support of 20 percent. The low-income countries provided an income support of less than 5 percent.
As a result of the pandemic, the households savings have shot up, Gopinath said. The emerging economies will be hesitant to spend post the pandemic against the advanced countries, Gopinath said.Gopinath also said the Labour force participation rate has fallen due to the pandemic and the recovery of the same will be slow for some counties while there has been recovery in some other.