The stimulus package also does not take note of the gaps in Indian statistics and the absence of an adequate support system for the most vulnerable sections. We do not have reliable data on job losses and of the performance of the small and unorganised sector. Can we devise some means of rectifying this gap in benefits and data? The labour ministry and the small and medium enterprises ministry should consider ways to tackle this problem about which we have little data at present.

The stimulus given to the housing sector must be fine-tuned to the special needs of our country. Exercise demands are being made by associations of real estate developers. The housing sector in India has been less affected by bad lending and we should not introduce measures that encourage imprudent lending beyond the capacity of borrowers, as was done in the West. Interest rates need not be especially manipulated or laid down for this sector as interest rates are in any case falling for all sectors. Tax benefits should however be given for interest (not principal) payments and ceilings on such benefits could be removed to enable borrowers to meet their loan commitments since their jobs and salaries are at stake today.

Layoffs of construction staff that could arise as a result of the housing slump can be compensated by providing civil construction jobs in new infrastructure projects promoted by government. Urban development projects are particularly good for this purpose as they can mop up workers and contractors left idle by the slow down of private housing projects. Several projects under Jawaharlal Nehru Urban Renewal Mission (JNNURM) are prepared and ready all over the country. Approximately a hundred projects submitted by the state governments are pending approval by the government of India. All these projects should be approved and appropriate grants released. Civil work is also available on irrigation projects in many rural areas.As in JNURM, all that is needed is additional allocation and immediate fund release.

There is also a strong case to introduce rural works programmes for developing high quality internal roads on the Gram Sadak Yojana pattern in bigger villages. This expansion of the Gram Sadak Yojana programme can be easily undertaken as the second phase of Bharat Nirman. By extending the quality of roads into the larger villages, we will be encouraging big investments in rural areas and making our villages as attractive to their residents as urban areas.

The federal nature of contra-cyclical policy has not been addressed in the stimulus package. State governments who experience contractions in tax and other revenue during the recession are likely to compensate by raising taxes and curtailing expenditures (particularly since they cannot print money and must get their borrowing programs approved by other authorities). The budgetary policies of the Centre and the states must be aligned. State chief secretaries and development commissioners should be educated and convince them about the need for coordinated budgetary action to prevent increase in state tax rates and drastic cuts in their expenditure and recruitments during the crisis period. State borrowing programs should also be reviewed and increased.

To encourage coordinated macroeconomic management, the Sarkaria Commission had recommended that the National Development Council should be transformed into a National Economic and Development Council. The time has come to set up an effective inter-governmental body in lieu of the NDC of the kind that exists in some federations like Germany so that state and Central governments can work out a joint strategy.

India, fortunately, does not depend much on exports for ensuring the growth of its economy, whereas China depends largely on exports. Countries like China whose growth has been severely affected by sudden contraction of export markets in the West have already begun to consider dumping goods in the Indian market. Our tariff policy must be formulated in a holistic manner considering the relative interests of domestic producers of primary inputs, intermediate and consumer goods as well as of consumers. The appropriate level of protection for each stage of production will have to be determined as also the strategy keeping in mind WTO and other commitments. In most developed countries, this is accomplished by an independent expert tariff commission. Setting up an independent tariff commission needs to be considered urgently. Safeguard duties also need to be imposed quickly whenever there is a spurt in imports from any source. This is a permissible measure even under WTO regulations and all countries will be using it during this recessionary period. Data regarding imports available with customs authorities should be watched and analysed on real time basis preferably by the Tariff Commission and the Department of Commerce to prevent the domestic market from being swamped with cheap imports.

Demand creation is a real problem confronting the country. This can be achieved by a positive development oriented budgetary policy as we must recognise the limits of a strategy based largely on monetary policy. As the PM observed, “we are in a typical Keynesian situation where there is a lack of demand; private sector demand is weak; but strong governments demand both for social services and for investments will provide the necessary stabilisers our country needs”.

The writer is chairman, Administrative Reforms Commission