What, when ,why and how of the Stimulus?

 "Negotiations over a shrinking pie are especially difficult, because they require an allocation of losses"

The above is from Daniel Kahnemann's magnum opus "Thinking, Fast and Slow". India is facing a shrinking pie situation with steep GDP contraction. Fiscal stimulus is imperative and it is expected on a yesterday war footing. Early birds and head-starts enhance hope and confidence which feed favourably into demand and investment.They also act as countercyclical to shrinking pie despondency. Credit boost is a temporary remedy to manufacturing machinery to kick start and keep up the production capacity. But it can work only up to a point, where the productivity and earnings should become sufficient to keep up with the plan of repayment of loans and borrowings. If the people in general do not foresee sufficient future income and employment, they may not turn out to buy things and assets.They cannot evergreen their loans like some corporates feeding only on liquidity. People should have sufficient disposable discretionary income to buy durables and assets. Or atleast have the confidence of generating future income through gainful employment or business opportunities. Otherwise it becomes a shrinking pie syndrome which feeds into further shrinkage,  leading to a vicious cycle.

For quick results, Govt should look at products that have price elasticity. One of the products which is highly price sensitive is Automobile. Irrespective of the clamour of the opposition that cars are bought by the rick, Govt should look at the huge multiplier effect this will have on the rest of the economy. UPA Govt used this carrot when the economy plunged into an economic abyss following the financial crisis in 2008-09 and the growth revival was tough. UPA Govt responded by temporarily reducing Excise duty on Cars etc. in order to boost their demand.This action had a huge beneficial ripple and multiplier effects running across the economy.

However much you tweek monetary policy to boost credit offtake, unless it is followed up by fiscal measures to give a fillip to the demand generation, the credit growth will not be sustained. Fiscal measures must also be credible in the eyes of the public and for that products which have demonstrated price elasticity must be chosen. Only this can start rotating the wheels of the economy bringing about a virtuous cycle of employment,income and surplus.

Of course ,Govt has also taken measures under Atmanirbhar Bharat to promote Make in India to crank up the economy and the demand. But quick result areas and the low hanging fruits must be tried immediately.Govt must always remember:

 "For want of a nail the shoe was lost.

For want of a shoe, the horse was lost.

For want of a horse , the rider was lost.
For want of a rider, the message was lost.
For want of a message ,the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a horseshoe nail."

A stitch in time saves nine . The falling tax revenues and the 15th Finance Commission's Chairman Mr.N.K.Singh's exhortation to pep up the GDP growth is a clarion call that can be ignored by Govt only at its own peril.