Fiscal & Monetary Policies Can Revive Indian Economy

Fiscal & Monetary Policies Can Revive Indian Economy

Confidence building in Public healthcare is necessary for economic regain.

“I have always believed in expansionary monetary policy and if necessary fiscal policy when the economy is depressed” –PAUL KRUGMAN

The above lines of Krugman suggesting that fiscal policy is a better option for depressed economies but the Indian economy is dented not Debilitated. Indian Economy started to recover from the first COVID wave but the sudden arrival of an unexpected second deadly wave left down the economy with negative shocks. Positive news of 1.6% GDP growth in the March quarter has already been superseded by the Second Wave.

The Economic damage of the second wave is showing in many indices. According To CMIE (Center for Monitoring Indian Economy), the unemployment rates rise by 3% in May. RBI’s Consumer Future Expectation index declined by 11% and JP Morgan indices fall by 15%. It is a complete shock for Indian Policymakers. People are losing their jobs, they are frightened about their present & future and it is clearly showing in the indices.

Data Insufficiency

There is a huge gap between the actual number of deaths and the official data released by the Government. The second wave has taken the lives of many people. Families in India are not ready for huge costs they are fighting for survival. In this time of uncertainty it is really hard for Indian policymakers to expect the pre-pandemic demand. Confidence building in Public healthcare is necessary for economic regain. In the absence of confidence in the public health spending of the consumers will decrease.

Providing Fiscal stimulus is the option mostly adopted by the Developed Economies but Currently, it has become a better option for Developing Economies. What is Fiscal Boost? Fiscal boost refers to the increased Government spending which is mainly targeted towards the households, incentives targeted towards affected sectors of the Government, and increase in public health expenditure to build the confidence of the public in the Healthcare system.

Following an expansionary Fiscal policy is sometimes constrained due to the availability of Fiscal space. Those Governments which are witnessing low deficits for a long time have low public debt. It helps the governments in the expansion of the deficits during stressed times. In India, the public debt is around 90% of GDP and the consolidated public sector Fiscal deficit reached 12.1% in 2020-21. It can lead to inflation in the country.

Policies & Strategies

In times of Inflation Fiscal spending acts like petrol on the fire. Indian economy is witnessing huge inflation as the WPI(Wholesale Price index) reached 10.5% in April, but CPI (Consumer Price Index ) remained controlled. Fiscal expansion is the only hope left for the Indian economy. Government should revise its budget and simplify it according to the updated conditions.

  • Three areas need an infusion of funds First is the Vaccination and it should be funded by the Central  Government for all the eligible Indians and Fortunately Indian Government has decided to vaccinate the people at zero cost. Vaccinating all Indians can cost the GDP approx. 0.8%.The Universal Free vaccination approach is the best method to curb the pandemic.
  • The second area is the Urban people as the Urban unemployment rate rose to 15%. Urban poor are prone to vulnerabilities as they are not linked with many Social Welfare schemes like MNREGA etc. So, it is the need of the hour to give proper attention to the urban poor.
  • The third is reducing the CGST rate on consumer durables. It will provide as an incentive for the burdened households in the time of crisis. It will help in raising some segments of demand. The other relief component can be macroeconomic management is the effective monetary policy. The main is interest rates but it has become ineffective

Bottom Line

The second wave of the COVID 19 affected a lot and in many ways, like it has killed many people, affected the people from various classes of society. Thanks to the God that Now Country is coming to the path of Normalcy but the third wave is also predicted. In the economic domain, the most affected sectors are Hospitality, Tourism, Travel, etc. The government has decided to provide a fiscal boost to all these sectors. Ramping up the vaccination process also increased economic activities. Now let us see that How India will gain momentum after the second wave?

Edited By Team CLIQTAX

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