Context: Due to the limited freedom available to the Finance Minister, the stimulus package has not fulfilled the expectations.
Recent Steps Taken:
Monetary Stimulus: Announcement of stimulus package comprising around 2 % of GDP Assisting various sectors including MSMEs, Agriculture and others.
RBI’s injection of liquidity: through various measures like Targeted Long-Term Repo Operations, cut in Cash Reserve Ration, refinancing of Small Industries Development Bank of India (SIDBI) etc.
Structural Reforms: Including APMC, Essential Commodities Act, freeing inter-state trade, FDI and privatization.
Relaxed Fiscal Deficit norms: States are allowed to expand their fiscal deficit to 5 % of State GDP, taking the combined deficit to 10.5%.
Critique of the steps:
Addressing migrant’s plight : Knee jerk reaction to the pandemic has created hardships for the migrant labour. Steps towards their wellbeing should have been taken earlier.
Insufficient stimulus: Under the facade of magnanimous Rs 20 trillion, their lies only Rs 2 trillion of actual spending by the government. This has ruined the expectation for industry bodies like FICCI and CII.
Way Forward :
The “3 T Test” of fiscal stimulus to be effective: which consists of Timely, Temporary and Targeted. To this one may add adequacy.
The solution to monetize the deficit should be avoided as it can throw up serious problems of macroeconomic stability.