Stimulus for construction sector likely

Stimulus for construction sector likely
The Financial Express, Fe Investor, July 12, 2009, Page 1

Sunny Verma

The government is considering a fiscal stimulus for the construction sector that has been badly affected by the economic slowdown. “Slowdown in investment in the construction sector has put a halt to everything. We are trying to see whether there could be a stimulus (package) for the construction sector,” labour and employment secretary Sudha Pillai said on Saturday.

Growth in the construction sector slipped to 7.1% in 2008-09 as compared to 10.1% in 2007-08, according to Central Statistical Organisation data, with a growth rate of 6.8% for the January-March 2009 period. With job losses in the sector reported to be substantial, the labour ministry is conducting a study to analyse the impact of the slowdown on construction workers.

Pillai said the global economic crisis has resulted in significant job losses in rural areas and in some export-oriented sectors, although the government’s rural job guarantee programme helped in containing them.

The pain caused by the economic downturn, however, has resulted in a record number of 98 lakh people lining up to withdraw their provident fund money in 2008-09. The average number of claims that the Employees Provident Funds Organisation (EPFO) usually settles annually is around 25 lakh. “There were 98 lakh claims made last fiscal, which is very high compared to the previous fiscal,” Pillai said.

Massive job losses in areas like textiles, diamond, and small and medium sectors pushed people to withdraw PF money to tide over cash crunch at the retail level, she added.

Endorsing the government’s overall fiscal stimulus programme, Pillai said the steps were essential to protect growth in the current “unusual economic situation”. The government was “trying to put more money in the hands of the people” to ensure that the stimulus packages resulted in a large multiplier effect, Pillai said at a post-Budget analysis seminar in the Capital.

The Centre’s fiscal deficit is projected to rise to 6.8% of the GDP in 2009-10 from 6.2% in 2008-09 due to a series of tax cuts and expenditure increases announced to protect the growth rate.

The EPFO settled 25.76 lakh provident fund claims in 2006-07, 22.44 lakh in 2005-06 and 24.09 lakh in 2004-05, as per data maintained by the Fund. Last week, EPFO kept the interest rate unchanged at 8.5% on around Rs 1.82 lakh crore of PF deposits parked by 4.5 crore subscribers. The labour ministry has estimated job losses at 5 lakh in the October-December 2008.

However, the National Rural Employment Guarantee Act, 2005 (NREGA), which provides 100 days employment to every rural household adult, has “cushioned the flow of job losses”, Pillai said. Budget 2009-10 has raised the allocation for NREGA by 144% to Rs 39,100 crore in this fiscal.

The Budget seminar was organised jointly by the Indian Council for Research in International Economic Relations, Centre for Policy Research, India Development Foundation, National Council for Applied Economic Research and National Institute of Public Finance and Policy.