https://orcid.org/0000-0002-9600-5484
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ABSTRACT
This paper analyzes the efficacy and skepticism surrounding the economic stimulus package announced by the Indian authorities in response to the Covid-19 pandemic in 2020. While the end of the pandemic is yet to be on the horizon, countries across the world have been undertaking economic stimulus packages of varied nature, depth, and quantum. A scrutiny of these packages show that India has been cautious in formulating policy measures and balancing inter-temporal objectives. The disaggregated economic stimulus package in India belies the justification of it being an adequate stimulus in managing the mammoth crisis, especially when the authorities had resorted to more deferred spending measures while the need of the hour was direct fiscal spending. Specifically, this study argues that the causes behind the fiscal conservativeness might be linked to India’s twin deficits in the fiscal and current account fronts, along with the fear of a potential capital flight and a possible adverse response by the foreign investors.
KEYWORDS:
Acknowledgments
The authors extend sincere thanks to the anonymous referees of this journal for their insightful and detailed comments and suggestions.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
2. Of 182 countries for which health expenditure as a proportion of GDP was available for the period 2017 from the World Bank’s World Development Indicators, India ranked 160th, despite being the second-largest country in the world by population and the seventh largest country by size. As far as health infrastructure is concerned, countries with a high human development index have, on average, 55 hospital beds, over 30 physicians and 81 nurses per 10,000 people and an average least developed country has 7 hospital beds, 2.5 physicians and 6 nurses for the same number of people, according to the United Nations Development Programme (UNDP). Shockingly, for India, there are 7 hospital beds, 7.8 physicians and 21 nurses and midwives available per 10,000 population.
3. Responding to the decelerating growth rates, the Reserve Bank of India had already initiated an expansionary monetary policy, reducing interest rates from January 2019.
4. Based on the exchange rates of Indian Rupee on 12 November 2020, India’s economic stimulus package is equivalent to around US$410 billion, British Pounds 300 billion, Euro 340 billion and Chinese Yuan 2650 billion.
5. Sovereign rating downgrade would imply that bonds issued by the Indian governments would be ‘riskier’ than before, due to weaker economic growth and worsening fiscal health.
6. As on 31 October 2020 based on information sought by a private petitioner, only 1.2 trillion was sanctioned as credit guarantees from the first tranche of the package by the Government, which amounts to around 10% of the initial tranche. The low disbursal of funds notwithstanding the large-scale losses to individuals, families and businesses even after 7 months of the first case of the pandemic, does not augur well for the economy to kickstart. See https://timesofindia.indiatimes.com/india/rs-20l-cr-pandemic-package-barely-10-disbursed-says-rti/articleshow/79677830.cms.
7. Figures published by the International Monetary Fund are closer to our estimates. According to the calculations of IMF, the direct spending plus and foregone or deferred revenue part of the stimulus is around 1.9% of GDP. There is an additional announcement of Rs 150 billion for health infrastructure, which is approximately 0.1% of GDP by their calculation. ‘Below the line measures’, that is measures without an immediate bearing on government’s deficit is another 4.9% of the GDP. See https://www.imf.org/en/Topics/imf-and-Covid19/Policy-Responses-to-Covid-19#Ifordetails.
8. On 8 November 2016, the Government announced the demonetization of all INR 500 and INR 1,000 banknotes to reduce the size of the shadow economy, and the use of illicit and counterfeit cash to fund illegal activity and terrorism.
9. 238 migrant workers died while migrating homes, from physical sickness or accidents during transit: https://www.indiatoday.in/news-analysis/story/migrant-workers-deaths-govt-says-it-has-no-data-but-didn-t-people-die-here-is-a-list-1722087-2020-09-16). However, the Government failed to collect data on migrant deaths. According to the United Nation’s World Food Programme (WFP), an estimated 265 million people could be pushed to the brink of starvation by the end of 2020. As far as jobs are concerned, the Centre for Monitoring India Economy Private Limited suggested that the labour force participation rate had dropped from 42.6% at the beginning of the lockdown on March 22 to 38.2% in May, 2020 and currently hovers around 40% with unemployment close to 10% on 13 December 2020.
10. The Indian economic recovery seems led by profits, not wages (livemint.com).
11. India experienced deceleration of growth over the last three years; the IMF in its June 2020 World Economic Outlook projected the Indian economy contracting by 4.5% in 2020.
12. In fact, the recent improvement in current account balance (as well as trade balance) of India has been primarily due to the subdued imports on account of an economic contraction and not necessarily due to any exuberance in exports.
13. Technically, FPI = FII + Capital raised under American Depository Receipts and Global Depository Receipts.
14. IMF’s 2018 Article IV Consultation Report for India noted, ‘The difference between the authorities’ and IMF presentations primarily reflects higher-than-budgeted privatization proceeds, which are recorded below the line in the IMF presentation’; see IMF (Citation2018).
16. This happened despite the fact that India’s foreign exchange reserves is growing and reached a record US$ 538.19 billion as of 14 August 2020 (https://timesofindia.indiatimes.com/business/india-business/forex-reserves-climb-3-623-billion-to-record-538-191-billion/articleshow/77548073.cms).
17. Even during 2008, coinciding with the election year, some of the fiscal stimulus was prior to the fall of Lehman Brothers and was in the nature of election year sops.
18. The US Treasury Department’s report on ‘Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States’ of December 2020, noted, ‘The (Indian) authorities responded with modest direct fiscal support of around 2% of GDP and substantial monetary easing’ (p. 11).