Former RBI Governor says financial stimulus of ₹1.7Lakh Cr is not enough

Former RBI Governor ‘Duvvuri Subbarao’ on Sunday told the financial stimulus announced by the Centre on March 26 on account of lockdown for containing spread of Corona virus is “not sufficient” ;Maintaining that the combined fiscal deficit of the Centre and states may go up to 13-14 percent of this fiscal. “The Challenge of the Corona Crisis – Economic Dimensions”, organized by the city based Manthan Foundation, Subbarao told the Centre needs to cap its borrowings as for the open ended borrowings will have negative consequences as like pushing interest rates high.
Former RBI Governor Subbarao said – “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”. The government must cover more households, give more per household and provides for for much longer per household. That is the first challenge on the government expenditure”. The Finance Ministry unveiled about Rs 1.70 lakh crore economic package on March 26 involving free grain and cooking gas for the poor for subsequent 3 months.

Former RBI Governor


Former RBI Governor Subbarao told that the govt needs to spend more as it is a moral and political imperative. In order to spend more, the govt needs to borrow more. The combined fiscal deficit of the centre and state govts for this fiscal year as budgeted is 6.5 percent of the GDP. Due to the loss of revenue on account of the lockdown, because of the declination in the nominal GDP on account of the lockdown, the fiscal deficit will go beyond 10 percent of the GDP. The additional borrowings will now take the fiscal deficit to the range of 13 to 14 percent of GDP.
It is also noted that Subbarao said – “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 many 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”.

 

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