Chief Economic Advisor, KV Subramanian, stated that the government is open to coming out with more measures to boost the economy which has been severely hit by the second wave of the coronavirus pandemic.
Talking about the much-anticipated fiscal stimulus against covid second wave, he maintained that the demand for a fresh stimulus package has to be considered against the backdrop of a host of initiatives taken by Finance Minister Nirmala Sitharaman in her budget for 2021-22. The comments by the Chief Economic Advisor on additional stimulus package, came after various suggestions were made by some industry bodies that the government needed to come out with a Rs 3 lakh crore stimulus package to boost the economy which had been badly hit by the second wave of the coronavirus pandemic in April-May.
According to an assessment by the Reserve Bank, the second wave has cost the nation around Rs 2 lakh crore. The estimate came in terms of output lost by the economy during the second wave.
He stated that “Like last year, we do remain very open to coming up with more measures as well…but I think it is really important to take into account the big differences between last year and this year when we talk about stimulus,”.
The CEA, defending the government’s stance to hold back on the stimulus, stated that unlike the previous budget which was framed before the pandemic, the 2021 budget was presented well amidst the pandemic. Thus, according to the government, the budget already had incorporated and included significant fiscal expansion measures.
According to the budget, the main focus has been particularly placed on the infrastructure spending which will lead to construction activity across the economy. It should be noted that it will lead to subsequent creation of jobs in the informal sector and demand generation.
The significant capital spending by the government led to a 15 per cent increase in the construction sector in the fourth quarter. Additionally, the gross fixed capital formation to GDP surged to 34 per cent which was the highest in the last six years.
With regard to food security for the poor, the CEA stated that , the government has already extended the free food programme, PM Garib Kalyan Yojana, for 80 crore population till November.
The extension of the programme would cost about Rs. 70,000 crores according to the analysis. He further added that free vaccination for all was another important economic measure that would incur huge costs by the government. He stated that, “Vaccine as you would appreciate, is by far the most important from the perspective of getting back into the path of economic recovery,”.
Talking about the effect of the second wave on growth, Subramanian stated that there will be some impact but it is not likely to be very large.
As has been previously reported, India’s economy had contracted by less-than-expected 7.3 per cent in the 2020 fiscal year. This was after the growth rate had picked up in the fourth quarter, just before the world’s worst outbreak of coronavirus infections had hit the country.
The GDP print was better than expected contraction of 8 per cent for 2020-21 as projected by the Economic Survey.