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Last updated: 29 Sep, 2020  

India.Growth.9.Thmb.jpg Stimulus hopes

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Bikky Khosla | 29 Sep, 2020

A fiscal package is on the cards, the media reported last week. The expectation seems pretty reasonable, considering past instances. Just before Diwali in 2017, the Centre had announced GST rate cuts on around 27 items. Then around the festival season last year, corporate tax rate cut worth Rs 1.45 lakh crore had been announced. And so it will not be a surprise at all if the government rolls out a similar package this festive season.

Reports add that this time the stimulus may involve a bigger direct fiscal outlay compared to the previous two packages: the Rs 1.70 lakh crore Pradhan Mantri Garib Kalyan package under which free food grains and cash payment are provided to women and poor senior citizens and farmers; and the Rs. 20 lakh crore Aatmanirbhar Bharat package to fight the effects of COVID-19 pandemic in India. No doubt this is welcome news.

But skeptics question the ability of the government, particularly at this juncture of time. A global rating agency recently viewed that additional stimulus at this time may avert further economic downturn, but it may challenge India’s capacity to maintain sustainable public finances and balanced economic growth. At a time when GDP contracted by 23.9 percent in April-June and fiscal deficit for FY21 has been pegged at 12.5 percent of GDP, this sense of caution seems quite reasonable.

All this indicates that maintaining a balance is a must if we are to bring the economy back to a better footing. Bold moves like fiscal stimulus, accommodative monetary stance and bank recapitalisation are imperative if we want to return to a healthy growth rate in post COVID -19 period, but this growth impetus must be balanced with fiscal prudence so as to ensure macroeconomic stability. No doubt, these are difficult times, but the worst seems already to be behind us.

I invite your opinions.

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