Synopsis
Top finance ministry officials have said another round of stimulus is possible, without elaborating on the size, timing or other details.
Top finance ministry officials have said another round of stimulus is possible, without elaborating on the size, timing or other details. ET asked economists what they’d look for in such an effort and how it can be funded. Gaurav Noronha & Kirtika Suneja look at the suggestions:
The economy is picking up, why is another stimulus needed
Recent recovery is bounceback from lockdown combined with festival spending
The first stimulus round has come to an end
Business confidence is still shaky
Recent moves on LTC, bonus insufficient to create demand
Demand may peter out after festival season ends
Despite pickup, economy to see deep contraction
GDP forecast for FY21, in %
What could the next stimulus entail?
Extend free ration scheme till March
Some support for the urban poor
Income tax benefits for spending to ensure durability of demand
Lower GST on mobile phones, cement, vehicles & parts
Clear stuck payments to govt contractors, increase capex
Capital allocation to infrastructure projects already in the works to ramp up execution/spending
Non-refundable consumption vouchers with a short validity period
What may be holding back the government?
Fiscal constraints, lack of resources
Conserving resources should Covid-19 see a second wave
High level of debt
Possible rating downgrade if more debt is raised to fund stimulus
What about fiscal worries?
Not the time to worry about deficit
Fiscal expansion needed in times of downturn
Need to break cycle of weak consumer-business sentiment
Fiscal situation will look better once growth picks up
Rating agencies keener on revival plan than fiscal prudence
How can the Centre fund the stimulus?
Centre can use Ways and Means Advances to borrow
Pledge listed PSU shares with RBI in exchange for loans
Speed up strategic sales
Deficit monetisation should be on the table, but kept as a last option
"When the economy is contracting, a fiscal stimulus is required to revive it as it then sets off a cycle of higher growth and better tax collection." - ABHEEK BARUA CHIEF ECONOMIST, HDFC BANK
"Deficit monetisation is an extreme step, it can be considered but there are many options available before that." - AJIT RANADE CHIEF ECONOMIST, ADITYA BIRLA GROUP
Source: https://m.economictimes.com/news/economy/finance/another-round-of-stimulus-for-the-indian-economy-what-are-the-next-steps/amp_articleshow/78867039.cms
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