Context: With the looming threat of a recession over the global economy, countries around the world have resorted to various tools to inject fiscal stimulus into their economies.

Relief Package in India

  • A ₹1.7 lakh crore relief package was announced by the centre, in response to the COVID­19 pandemic and in turn an all-out lockdown.
  • If put into perspective, this relief package is only about 0.75% of India’s GDP.
  • Given the miseries, India may need ₹9-10 trillion extra to overcome the social impacts of the lockdown.

Risks associated with Lockdown

  1. Mass poverty which dwells upon the principle of state aid for the needy
  2. The creaky health set-up will come under stress when COVID-19 cases will rise.
  3. State of economic recovery after this shock. 
    1. The credit system is still reeling under the menace of bad assets.
    2. Bankruptcy risks remain higher in India than in many other countries, especially among smaller units leading to job losses and fall in consumption.

Way Ahead

  1. Cues from the Global World
    1. The US plans to spend over 10% of its gross domestic product (GDP), riding in the privilege of printing the world’s reserve currency and few fiscal limits. 
      1. Japan and Britain too are following the suit.
      2. Even Malaysia is about to spend at least 15% of GDP for surviving COVID-19.
  1. Rising over fiscal Consolidation
    1. India should rework the Union budget for 2020-21, and garner every source of funds available for the fiscal expansion to fight the COVID-19 crisis
    2. The government needs to identify the amount of money it hopes to spend in 2020-21, including on health infrastructure,
    3. It should also consider issuing bonds overseas on a vast scale, even at the risk of a depreciating rupee

Lastly, if sufficient production resumes over the next few months, we might be able to minimize the negative impact of such a last-resort action. But a massive increase in spending is the need of the hour.

Source: The Mint

Image Source: The Mint