Calibrated response to deal with pandemic leaves room for more fiscal measures: Economic Survey

The government’s calibrated fiscal response in reviving economic growth hit by the outbreak of Covid-19 pandemic leaves India with a greater elbow room to deploy fiscal resources in the future, the Economic Survey said on Friday.

In order to facilitate a resilient recovery of the economy from the impact of Covid-19 pandemic and the following lockdown, Government of India and Reserve Bank of India (RBI) together announced a total stimulus worth Rs 29.87 lakh crore, which is 15 per cent of national GDP.

Out of this, stimulus worth 9 per cent of GDP has been provided by the government under Aatma Nirbhar Bharat Package.

"Although India’s measures were smaller than those of other developed countries, they were successful in facilitating a recovery in the economy. This also leaves India with a greater elbow room to deploy fiscal resources in the future," the survey tabled in Parliament by Finance Minister Nirmala Sitharaman said.

It may be emphasised that in contrast with the fiscal policy approach adopted by some of the other countries, whereby a one-time large demand stimulus package was announced, the fiscal stimulus by the Government of India was introduced in a phased manner, the survey 2020-21 said.

The economies across the world have undertaken massive use of fiscal policy measures with an objective to protect the lives and livelihoods against the health and economic effect of Covid-19 pandemic, to boost the demand and foster the reopening of the economies after the lockdown phase, it said.

"The fiscal measures adopted have been diverse, comprising of above the line measures, below the line measures and contingent liabilities (guarantees, quasi-fiscal operations)," it said.

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Above-the-line measures include those for which full cost is reflected in the fiscal deficit, government debt, and increased borrowing needs in the short term. These measures include additional spending, capital grants and targeted transfers or tax measures while below-the-line measures are defined as generally involve the creation of assets, like equity injections, loans and asset purchase.

Below-the-line may have little or no upfront impact on the fiscal deficit all although they can later increase debt or reduce liquidity.

The special economic and comprehensive package announced in the initial phase of lockdown focused on measures to primarily provide a cushion to the vulnerable sections of the society and the small businesses, it said, adding, this included direct food transfers to the poor and vulnerable, livelihood programmes, guarantees and liquidity enhancing measures.

"Subsequently, along with the steady unwinding of the lockdown and restrictions, the demand side impetus was given to re-inflate consumption demand. When the economic recovery began after the lifting up of the lockdown, the focus of the stimulus measures shifted towards on investment boosting measures like production linked incentives, enhancing capital expenditure and steps to encourage investment in infrastructure sector," it said.

Soon after the pandemic hit the country and lockdown was imposed, the government in March, 2020 announced a Rs 1.70 lakh crore Pradhan Mantri Garib Kalyan Yojana (PMGKP) to protect the poor and vulnerable from the impact of health crisis. Other relief measures were to the tune of Rs 22,000 crore.

It was followed by the Aatmanirbhar Bharat Abhiyan package in May, 2020, largely focussed on supply-side measures and long-term reforms.

The five part stimulus package announced by the Finance Minister beginning May 13, 2020, comprised Rs 5.94 lakh crore in the first tranche that provided credit line to small businesses and support to shadow banks and electricity distribution companies.

The second tranche included free foodgrain to stranded migrant workers for two months and credit to farmers, totalling Rs 3.10 lakh crore. Spending on agri infrastructure and other measures for agriculture and allied sectors in the third tranche totalled to Rs 1.5 lakh crore.

The fourth and fifth tranches that dealt mostly with structural reforms including relaxation of foreign direct investment (FDI) limit in defence, privatisation of six more airports, and fully opening up coal mining to the private sector.

To boost consumption during the festival season, the government October, 2020 announced measures of close to Rs 73,000 crore to stimulate consumer spending in an effort to rein in slowdown due to the Covid-19 pandemic.

Atmanirbhar Bharat Abhiyaan 3.0 unveiled in November 2020, ahead of Diwali, was Rs 2.65 lakh crore. Of the total, the maximum Rs 1.45 lakh crore was allocated to give a boost to manufacturing, followed by Rs 65,000 crore for agriculture (fertiliser subsidy), and Rs 10,200 crore for industrial infrastructure, incentives and domestic defence equipment.

The Finance Minister on November 12 had said RBI made liquidity infusion to the tune of Rs 12,71,200 crore in the Indian economy battered by Covid-19 pandemic till October 2020.

On combining all the stimulus measures since March by the Centre and Reserve Bank of India put together was Rs 29,87,641 crore.