Stimulus 2.0: A lesson in fiscal conservatism

Context: The finance minister unveiled the pre-festive demand stimulus package was notable more for its complexity than generosity. An overriding concern was to avert a fiscal blowout.

Significance of Fiscal Stimulus 2.0 announced:

• Capital expenditure: The Centre plans additional capital expenditure of ?25,000 crores while states government would be given 50-year loan free of interest worth ?12,000 crores conditional on the reforms done in states
• Boosting Private Consumption: 
• Tax deduction on travel allowances and provision of tax relief on one-third of one's shopping expenses made online and attracting a minimum Goods and Services Tax of 12%.
• Centre as a part of festive season advance, has given Rupay Cards preloaded with ?10,000 each as a zero-interest loan.
• Government Borrowing: The package will not alter the Centre's current borrowing target of ?12 trillion for this fiscal year, which is already up from ?7.8 trillion planned back in February.
• Multiplier effect on jobs and incomes of state spending, especially for infrastructure and other projects.
• Reliving inflation worries since the current stimulus does not alter the Centre's borrowing targets.

Challenges before the government: 

• Stimulating demand vs controlling inflation: The stimulus announced to stimulate demand should not burden common citizen with future inflation and government with unsustainable debt.

Conclusion: Even if the stimulus package ends up only as a footnote in the story, what matters at large is India's economic recovery.