Modi’s economic package is spot on; here’s why it can’t be directly compared with other nations

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June 1, 2020 1:25 PM

Economic packages work directly through aggregate demand, mitigating risk, and enhancing access to funds, hence it is difficult to establish the quantum of fiscal stimulus components.

fiscal space, fiscal stimulus, revenue shortfall, covid 19, GDP,PSU, covid 19, current fiscal, market borrowing, economy newsIndia’s fiscal stimulus is around 4 per cent of GDP while among developing nations, only Brazil (8 per cent of GDP) and Peru (7 per cent of GDP) have a fiscal stimulus higher than India.

India’s fiscal package announced by Prime Minister Narendra Modi is appropriate and the country is a positive fiscal outlier as the stimulus is nearly the largest among major emerging market economies. India’s fiscal stimulus is around 4 per cent of GDP while among developing nations, only Brazil (8 per cent of GDP) and Peru (7 per cent of GDP) have a fiscal stimulus higher than India, Surjit S Bhalla, executive director of IMF representing India, Sri Lanka, Bangladesh, and Bhutan, wrote in The Indian Express citing data from IMF-PT. Surjit S Bhalla also slammed the claims that India has more fiscal space and the government is being heartless by not spending more.

On comparison of India’s economic package with other countries, he added that such packages work directly through aggregate demand, mitigating risk, and enhancing access to funds, hence it is difficult to establish the quantum of fiscal stimulus components. Pointing towards the government’s efforts to boost MSME, Surjit Bhalla wrote that it is being ignored by the critics who kept on complaining about the woes of MSMEs and the government’s heartless attitude.

Repo rate cut

On the back of a prolonged slowdown in India, RBI had cut repo rate by 135 basis points in 2019 and further, it has cut 115 basis points this year to fight coronavirus pandemic-led disruptions. The monetary policy change in India is quite significant, however, the transformational impact of this monetary stimulus is yet to be recognised. The repo rate now stands at 4 per cent, with inflation well contained.

This is substantially a much different, and much-improved RBI response than that what occurred in 2008-09, Sujit Bhalla wrote. Back then, as a monetary counter to the financial crisis, the RBI reduced the repo rate by 425 basis points to 4.75 per cent. Also, this was done over seven months and the prevailing CPI inflation rate was 10 per cent.

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