On-Line, But not length

The Economic Times     17th November 2020     Save    
QEP Pocket Notes

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.

QEP Pocket Notes