A kind of relief

Source: Livemint, Indian Express, Livemint

Relevance: Indian Economy is facing a slowdown. A fiscal stimulus package was much needed to give it a boost.

Synopsis: India’s finance minister Nirmala Sitharaman recently announced a long-awaited stimulus package. Now, critics and experts are analyzing the nature, targets, and potential of the package.

Read facts about Stimulus Package

Analysis of stimulus package

• The package consists largely of credit guarantees to boost liquidity flows towards the more vulnerable parts of the economy. It includes micro, small and medium enterprises, small household borrowers, tourism, and health sectors.
• Emergency Credit Line Guarantee Scheme (ECLGS) would help MSMEs in accessing much-needed funds to commence operations.
• The scheme announced for the tourism sector likely to have less impact because a majority of the sector operates in the informal economy.
• One of the Scheme announced for the health sector focus specifically on paediatric care. Further, other measures would address the gaps in the public health infrastructure exposed by the pandemic.

What would be the impact on the budget?

1. Firstly, the actual fiscal outgo on account of these relief measures is likely to be minimal. The credit guarantee route will have actual fiscal outgo of around 0.6 percent of GDP.
   • This approach is similar to the one adopted during the first wave. Direct demand-side support from the central government has been limited.
2. Secondly, most of the Centre’s commitments are contingent liabilities that may not arise at all.

Nature of Fiscal stimulus package

• This package reaffirms the rejection of the Keynesian method of demand stimulation, which includes measures like Cash giveaways.
• Direct spending has been reserved only for absolute vulnerable sectors and sections such as food hand-outs, healthcare infrastructure, and rural internet connectivity.
• Thus, the nature of government policy is fiscal conservatism. Last year’s Atmanirbhar rescue plan also depicted this policy, where state expenditure was very less compared to the package announced.

How desirable is fiscal conservatism?

• India’s policy of fiscal conservatism is a step in the right direction if we look from the future perspective. It would save the economy from the risk of future instability and a heavier tax burden.
• However, still, India would need some moderate measure for revival in overall demand. Which is not possible by easing loans.