Facts:
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Put together, all Covid-19 relief measures would increase the Centre’s actual fiscal outgo by under 2% of GDP in 2020-21.
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As per the government, the total stimulus announced by the Government and Reserve Bank of India (RBI) till date (including Atmanirbhar 1.0 and Atmanirbhar 2.0), to help the nation tide over the Covid-19 pandemic, works out to Rs. 29.87 lakh crore, which is 15% of national GDP.
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Out of this, the stimulus worth 9% of GDP has been provided by the government.
Governments Approach:
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Government is following ideology of ‘fiscal conservatism’ i.e. rather than large cash transfers, the growth philosophy centres around :
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creating an ecosystem that aids domestic demand,
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incentivises companies to generate jobs and boost production, and
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simultaneously extends benefits to those in severe distress, be it firms or individuals.
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The measures follow a multi-pronged approach:
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generating employment
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encouraging formalisation of the workforce in urban areas
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expanding the scope of distress employment provided in rural areas
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easing the flow of credit to stressed parts of the economy
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expanding the incentives offered to boost domestic manufacturing
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kickstarting the real estate cycle
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Way Forward
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The government’s announcements focus on job creation, easing credit flow, but actual spending remains limited. More support is needed.
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The finance ministry’s view of the state of the economy suggests that it believes a strong and durable recovery is taking hold. This is partly in line with the results of a study carried out by economists at the RBI, who now expect the economy to contract at a slower pace in the second quarter than what was expected before.
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As the RBI noted in its ‘State of the Economy’ report, while it is possible that the third quarter (October-December) may not see a contraction in GDP growth, there are significant risks — relentless pressure of inflation, poor global growth following a second wave of Covid-19, and intensifying stress among households and firms both. Thus, the government needs to take steps accordingly.