Another round of stimulus for the Indian economy: What are the next steps?



Synopsis

Top finance ministry officials have said another round of stimulus is possible, without elaborating on the size, timing or other details.


Top finance ministry officials have said another round of stimulus is possible, without elaborating on the size, timing or other details. ET asked economists what they’d look for in such an effort and how it can be funded. Gaurav Noronha & Kirtika Suneja look at the suggestions:


The economy is picking up, why is another stimulus needed

  • Recent recovery is bounceback from lockdown combined with festival spending

  • The first stimulus round has come to an end

  • Business confidence is still shaky

  • Recent moves on LTC, bonus insufficient to create demand

  • Demand may peter out after festival season ends

  • Despite pickup, economy to see deep contraction


GDP forecast for FY21, in %


What could the next stimulus entail?

  • Extend free ration scheme till March

  • Some support for the urban poor

  • Income tax benefits for spending to ensure durability of demand

  • Lower GST on mobile phones, cement, vehicles & parts

  • Clear stuck payments to govt contractors, increase capex

  • Capital allocation to infrastructure projects already in the works to ramp up execution/spending

  • Non-refundable consumption vouchers with a short validity period


What may be holding back the government?

  • Fiscal constraints, lack of resources

  • Conserving resources should Covid-19 see a second wave

  • High level of debt

  • Possible rating downgrade if more debt is raised to fund stimulus


Fiscal deficit


What about fiscal worries?


  • Not the time to worry about deficit

  • Fiscal expansion needed in times of downturn

  • Need to break cycle of weak consumer-business sentiment

  • Fiscal situation will look better once growth picks up

  • Rating agencies keener on revival plan than fiscal prudence


How can the Centre fund the stimulus?

  • Centre can use Ways and Means Advances to borrow

  • Pledge listed PSU shares with RBI in exchange for loans

  • Speed up strategic sales

  • Deficit monetisation should be on the table, but kept as a last option


"When the economy is contracting, a fiscal stimulus is required to revive it as it then sets off a cycle of higher growth and better tax collection." - ABHEEK BARUA CHIEF ECONOMIST, HDFC BANK


"Deficit monetisation is an extreme step, it can be considered but there are many options available before that." - AJIT RANADE CHIEF ECONOMIST, ADITYA BIRLA GROUP


Source: https://m.economictimes.com/news/economy/finance/another-round-of-stimulus-for-the-indian-economy-what-are-the-next-steps/amp_articleshow/78867039.cms

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