CNBC reports that a JPMorgan economist said that public spending from the federal and state governments likely hold the key to jumpstarting India’s post-Covid growth instead of consumption.

“We have been through two waves. There has been some scarring at the bottom of the pyramid,” Sajjid Chinoy, chief India economist at the U.S. investment bank, told.

Certain sections of the economy thrived despite the Covid crisis while others suffered. 

“We have got to be realistic — that given where the labor market is — that precautionary savings may rise for sometime and people might be a little bit more reluctant to spending aggressively,” Chinoy said, adding the slowdown in consumption, which has been India’s traditional growth driver, started before the pandemic.

In its federal budget for the current fiscal year that began on April 1 and ends in March 2022, India’s federal government earmarked trillions of rupees to spend on roads, highways, railways and other capital expenditure.

Likewise, state governments have also planned to ramp up spending this year, which Chinoy said is the right approach to getting growth back on track.

“I am not sure India can necessarily rely on stronger consumption growth or stronger investment growth coming out of the second wave,” he said, pointing out that many households have struggled through the crisis and saw their balance sheets scarred. Investment is also expected to remain sluggish in the absence of demand.

“So, the government spending — and in particular public investment, and capital expenditure — would have to be the key to the revival in the coming months,” Chinoy said, adding it’s important that in the next six months “those capital expenditure budgets get spent to jumpstart growth.”