On-Line, But not length

The Economic Times     17th November 2020     Save    

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.