Jalan highlighted that India's macroeconomic situation was already troublesome and the growth would be impacted further due to the COVID-19 pandemic.
Former RBI governor Bimal Jalan has pitched for fiscal stimulus to mitigate the impact of coronavirus outbreak which, he said, could lower India’s growth by an estimated 1 percentage point, and affect jobs.
Jalan highlighted that India’s macroeconomic situation was already troublesome and the growth would be impacted further due to the COVID-19 pandemic.
“There is a coronavirus outbreak in the US, the European Union, also in India. In India also, the growth rate would be affected. Jobs (growth) will also be affected,” Jalan emphasised. Asked whether there is a case for fiscal stimulus by the government, Jalan, also a former member of Parliament, said that fiscal stimulus should be there.
“And we should not worry about a fiscal deficit target being higher than what has been announced. Because this is much more important. You know if there is security matter or something then you spend money more,” he said.
The government has raised fiscal deficit target to 3.8 per cent of the GDP from 3.3 per cent pegged earlier for 2019-20 due to revenue shortage “And this is an extremely important matter to make sure that amount of funds and resources and investment etc can be boosted and for that, if the fiscal deficit is 0.5 per cent higher, then I think we should accept.
Replying to a question on India’s current macroeconomic scenario, he said that the economic growth will be lower than the projected earlier. “So far, the macroeconomic situation is concerned, it’s troublesome. The unemployment is high, the rate of growth is low, credit growth is low and the amount of investment which is happening is also low.
“And part of the reason is of course coronavirus outbreak but before that also, the Indian economy was not doing very well,” the eminent economist said. Observing that the rate of growth in 2019-20 was expected to be 5 .2 per cent, and now because of coronavirus outbreak thing it is going to be much less, he said. “So, from an overall economic point of view, we are not in very good shape.”
On the impact of coronavirus on the Indian economy, he said that everybody has estimated that it (impact on growth) will be at least one percentage point reduction in GDP. “It’s crisis situation around the world,” he pointed out.
Asked whether RBI should also cut policy rates to infuse liquidity in the system, Jalan said he thinks the central bank has done it already. ” I think two months ago, they had announced a policy rate cut. So, the RBI has to consider what is the best thing for the country at the moment and they will decide,” he noted.
Facing lockdowns due to COVID-19 outbreak, the Indian industry has sought a fiscal stimulus of Rs 2 lakh crore, a slew of tax cuts and interest rate reduction to combat the impact of the pandemic. Major economies like the United States, France, Japan and the United Kingdom have announced billions of dollars worth of stimulus to their economies.