On-Line, But not length

Context: The latest INR 2.6 Lakh Crore fiscal stimulus package appears well considered and timed, but its success depends on the overall magnitude and implementation efficacy.

Benefits of Current Fiscal Stimulus:

• Caters to the pent-up demand: in the economic system.
• Focuses on removing supply-side bottlenecks: to stimulate growth and employment while keeping inflation under check.
• Focus on the employment-intensive sector: identified as telecom and networking, automobile, defence equipment, along with an emphasis on rural and agriculture, housing and overall infrastructure sector.

Issues with the Current Fiscal Stimulus:

• On a fraction of it is actually available: For E.g., under the Production Linked Incentive Scheme, the allocated budget is spread over five years which would lessen the impact.
• Ambiguity in the subsidies: For E.g. whether the INR 65,000 Crore support under Fertilizer subsidies it would be above budgeted allocation of INR 71,309 Crore or not is clear.
  • The extent subsidy would depend on the movement of global crude prices and overall demand in the market.
• Financing the Package:
  • As per Controller General Of Accounts(CGA) for FY20-21: both central gross tax and non-tax revenues contracted by -21.6% and -55.9% respectively.
  • Difficulty in meeting Budgeted Expenditure: Government’s total expenditure in the first half of FY2021 has contracted by -0.6% and capital expenditure contracted by -11.6%.

Conclusion: There is a possibility of another fiscal stimulus by the end of FY2021, by enhancing current borrowing programme to minimize the contraction of real and nominal growth rates in this crisis year.