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
- Mass poverty which dwells upon the principle of state aid for the needy.
- The creaky health set-up will come under stress when COVID-19 cases will rise.
- State of economic recovery after this shock.
- The credit system is still reeling under the menace of bad assets.
- Bankruptcy risks remain higher in India than in many other countries, especially among smaller units leading to job losses and fall in consumption.
- Cues from the Global World
- 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.
- Japan and Britain too are following the suit.
- Even Malaysia is about to spend at least 15% of GDP for surviving COVID-19.
- Rising over fiscal Consolidation
- 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.
- The government needs to identify the amount of money it hopes to spend in 2020-21, including on health infrastructure,
- 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