India should continue spending more on rural jobs for another year to check a rise in inequality during the pandemic and have a medium-term fiscal consolidation strategy to keep borrowing costs low when the economy emerges from the current crisis, said International Monetary Fund (IMF) chief economist Gita Gopinath on Thursday.
In her CD Deshmukh Memorial Lecture delivered at a virtual event organized by the National Council of Applied Economic Research, Gopinath said that the medium-term fiscal consolidation strategy could comprise effective goods and services tax (GST) collection and a credible divestment plan.
Countries where income support during the pandemic has been generous, people were more willing to spend rather than saving for any eventuality of a further wave of the pandemic or lockdown restrictions, she said adding that fiscal tightening during the pandemic would be counter-productive.
Gopinath's suggestions to the Indian government also include bolstering bank balance sheets and making the insolvency resolution framework more effective.
Her suggestions come as the government prepares to present the Union budget for the financial year 2021-22 on Monday with a focus on offering support to affected sections of the society and the economy and to promote self-reliance.
Generous income support in developed economies ensured consumption level held up among low-income groups, Gopinath explained. Close to 70% of advanced economies provided more than 50% of replacement income support, while in the case of emerging markets, that bar is much smaller at 20% and in the case of low income countries, it is even smaller, Gopinath said.
"Inequality is a major concern. The World Bank has flagged the risk of millions entering extreme poverty. I think it is a big risk for many countries, including India," the economist added.