India awaits another stimulus

The fiscal support must tilt towards more direct spending and tax relief

As India struggles to come out of the debilitating impact of the coronavirus pandemic, with economic activity resuming to a near-full throttle, the question uppermost in everyone’s mind is when will the second round of stimulus come and how far it can help revive the economy. Going by the flurry of activity at various ministries and their suggestions to provide a booster dose to the economy, there is a widespread expectation that Union Finance Minister Nirmala Sitharaman might unveil another tranche of stimulus package. While one can draw a sense of comfort from the declining rate of growth in the overall number of Covid-19 cases in the country, there is, however, an urgent need for the Centre to step in and increase public spending to stimulate demand and push for efficiency-enhancing reforms. For a country that was already grappling with a slowing economy, the pandemic and the resultant prolonged lockdown have wreaked havoc on almost every sector. The Reserve Bank of India has pegged the GDP contraction at 9.5% this financial year, as the data on the first quarter of the current fiscal captured the damage caused by the pandemic. The International Monetary Fund (IMF) too has projected that the country’s economy will contract by a massive 10.3% this year. The Rs 21-lakh crore ‘Aatmanirbhar Bharat’ package, unveiled by the Centre in May, was not enough to rescue the country from the immediate effects of the pandemic-triggered slowdown. In fact, it has failed to boost demand.

The country needs another booster shot to spur demand. Though the first round of stimulus package appeared massive, accounting for 10% of the GDP, most of it consisted of credit expansion, restructuring of loans and long-term reform measures. This can only help keep businesses afloat until demand recovers, but it does not directly stimulate demand. For that, one needs to look at the expenditure component of the package, which was very small. There is a strong case for stepping up expenditure on programmes that support the poorest sections who have suffered the most and on infrastructure projects. Fiscal conservatives, who detest the idea of overshooting the FRBM (Fiscal Responsibility and Budget Management) limits, should not unduly worry about the impact of the increased public spending on the country’s credit rating. An extraordinary crisis will no doubt call for extraordinary measures. Public expenditure must focus on health, food and income support for vulnerable households, and support for small businesses. The stimulus package needs to be recalibrated in such a way that the fiscal support tilts towards more direct spending and tax relief measures and rely slightly less on the credit guarantees.

---

---

Now you can get handpicked stories from Telangana Today on Telegram everyday. Click the link to subscribe.

Click to follow Telangana Today Facebook page and Twitter .

---