Centre's financial stimulus "not sufficient"; fiscal deficit


PTI | Hyderabad | Updated: 10-05-2020 15:33 IST | Created: 10-05-2020 15:33 IST
Centre's financial stimulus "not sufficient"; fiscal deficit
  • Country:
  • India

may go up to 14 %, - Subbarao Hyderabad, May 10 (PTI): Maintaining that the combined fiscal deficit of the Centre and states may go up to 13-14 per cent this fiscal, former RBI Governor Duvvuri Subbarao on Sunday said the financial stimulus announced by the Centre on March 26 on account of lockdown to contain spread of COVID-19, is "not sufficient". Speaking at a webinar titled "The Challenge of the Corona Crisis - Economic Dimensions", organised by the city-based Manthan Foundation, Subbarao said the Centre needs to cap its borrowings as the open ended borrowings will have negative consequences such as pushing interest rates high.

"The government announced the fiscal support package of 0.8 per cent of the GDP. Is that sufficient? No, it is not sufficient when it was announced on March 26. It looks even lesser now.

In fact, the government needs to spend more. And spend more on three things. The first item of expenditure is to enlarge and expand the livelihood support," Subbarao said.

He said that since March 24, when the lockdown was imposed nationwide, millions of households have become vulnerable and therefore livelihood support has to be extended to many more families as most of their savings have dried up. "The government needs to cover more households, give more per household and give for much longer per household. That is the first challenge on the government expenditure," he said.

The Finance Ministry unveiled a Rs 1.70 lakh crore economic package on March 26 involving free food grain and cooking gas for the poor for the next three months. Subbarao said it is quite clear that the government needs to spend more as it is a moral and political imperative.

In order to spend more, the government needs to borrow more. He said he disagreed with the view that since this is an extraordinary and unusual crisis, therefore the government should not tie itself by setting up borrowing limits.

"The combined fiscal deficit of the centre and state governments for this fiscal year as budgeted is 6.5 per cent of the GDP. Because of the loss of revenue on account of the lockdown, because of the decline in the nominal GDP on account of the lockdown, the fiscal deficit will go beyond 10 per cent of the GDP.

The additional borrowings will now take the fiscal deficit to the range of 13 to 14 per cent of the GDP. That is exceedingly high and will have all the negative consequences of high fiscal deficit," he opined. According to him, the domestic financial sector, which is under deep stress, will be under "deeper stress" by the time the COVID-19 crisis ends, though he sees some silver linings in the situation such as plummeting crude prices and bumper agri yield.

Stressing that the world has to live with coronavirus for some time, Subbarao said both centre and states are working in tandem to contain the pandemic. "The dilemma (of lives and livelihood) is the sharpest for India, given our weak medical infrastructure and high population density.

Any gaps in prevention can mean loss of millions of lives. On the other hand, a stringent lockdown to control the pandemic can mean millions of livelihoods.

This is a very difficult balancing act. Particularly for India, as our economy is in bad shape, Subbarao said..

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

Give Feedback