Centre must put economic growth first

Business Line
dated: May 04, 2020



The Centre must ignore warnings from global rating agencies and launch a fiscal stimulus

Even before the Centre made its decision to extend its 40-day lockdown by a further two weeks, economists had been stressing the need for an urgent fiscal stimulus package. The voices calling for stimulus ranged from former Chief Economic Adviser Subramanian, who argued for a pre-emptive stimulus to lift the economy from a likely contraction, to former RBI Deputy Governor Rakesh Mohan, who underlined that India today has the ability to sustain high fiscal deficits for short periods, and must use this to provide relief to workers and small businessmen hit by this enforced standstill. Both have suggested a stimulus amounting to about 5 per cent of the GDP. The Centre though, seems to be far more inclined to listen to warnings from global rating agencies, who have been making their usual threatening noises about the dangers of India overshooting its debt and deficit targets. Fitch Ratings recently warned that Covid will likely batter India’s GDP growth to 0.8 per cent in FY21, but seemed to caution against doing anything about it, citing limited fiscal space.
The Centre must ignore warnings from global rating agencies and launch a fiscal stimulus Even before the Centre made its decision to extend its 40-day lockdown by a further two weeks, economists had been stressing the need for an urgent fiscal stimulus package. The voices calling for stimulus ranged from former Chief Economic Adviser Subramanian, who argued for a pre-emptive stimulus to lift the economy from a likely contraction, to former RBI Deputy Governor Rakesh Mohan, who underlined that India today has the ability to sustain high fiscal deficits for short periods, and must use this to provide relief to workers and small businessmen hit by this enforced standstill. Both have suggested a stimulus amounting to about 5 per cent of the GDP. The Centre though, seems to be far more inclined to listen to warnings from global rating agencies, who have been making their usual threatening noises about the dangers of India overshooting its debt and deficit targets. Fitch Ratings recently warned that Covid will likely batter India’s GDP growth to 0.8 per cent in FY21, but seemed to caution against doing anything about it, citing limited fiscal space.

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