It will be completely foolhardy to stick to any mandated fiscal rules in times of the current crisis.
At a time when businesses and trade are frozen and the coronavirus scare is mounting every day across the globe, sticking to the fiscal mandate may not do any good to the economy. Extraordinary times call for extraordinary measures and out of box thinking and we thus strongly recommend that the increased excise revenue from oil should not be used for bridging the fiscal gap and pleasing the markets; rather sound economics demands it must be used as a fiscal package for income support to the people working in the unorganized sector who are already facing the brunt of loss of jobs, SBI said in its Ecowrap report.
The COVID-19 is likely to impact India’s fiscal numbers in FY20 though it might be too early to say, possibly in FY21, said SBI Ecowrap report. However, it will be completely foolhardy to stick to any mandated fiscal rules in times of the current crisis that is now threatening to rip apart the entire global financial ecosystem, it added. The State Bank of Indian has also suggested RBI to come out with a comprehensive scheme for sectors such as aviation, textiles, hotels, automobiles and food processing, that are severely hit and facing job losses.
It is expected that COVID-19 will have an impact on India’s GDP through trade, hotels, transport, etc that will have significant pressures on the fiscal deficit. In FY21, nominal GDP growth target is 10 per cent and every 10 basis points slippage in nominal GDP numbers in FY21 will push up the fiscal deficit by roughly 1 basis point. Meanwhile, though India has already taken various steps to arrest the spread of coronavirus, the rise in active cases in the next few weeks will determine the extent of the country’s preparedness.