Home >Markets >Mark To Market >In race to exit coronavirus crisis, India may lag global peers

There is no straight answer to how soon economies will bounce back to normal from the coronavirus pandemic. However, given its cascading impact on domestic demand, a key deciding factor would be fiscal support by the government. And India lags far behind its global counterparts with demand-boosting measures around 2% of gross domestic product (GDP).

As the alongside chart shows, developed economies have been more generous than emerging economies in doling out tax breaks and other income support measures.

“In some cases, like in India and Brazil, governments were simply slow to act. The RBI has stepped up and helped to ensure financial stability with large-scale liquidity injections and hefty rate cuts. A touch more easing is likely. By contrast, the finance ministry’s response has been timid., far lower than in many other countries," London-based research house Capital Economics Ltd said in a report on 27 July.

In March, the Indian government announced 1.7 trillion economic stimulus package through direct cash transfers and food security measures to fight a downturn due to the coronavirus crisis. In May, the government announced slew of fiscal packages. Nearly 6 trillion on liquidity provision to support micro, small and medium enterprises (MSMEs) and financial sector. Around 3.1 trillion to provide food security and credit flows to vulnerable sections of the economy including migrant workers, urban poor and farmers; around 1.6 trillion, focusing on agricultural and allied sector. The total fiscal impact of these measures is 1.1 trillion. In June, the food grain support scheme was extended till end of November, costing 900 billion.

According to Ranil Salgado, Mission Chief for India at International Monetary Fund, the stimulus measures by India are substantial, but there is more scope for such measures even after considering the limited fiscal space.

The RBI has so far cut rates by 135 basis points bringing the key repo rate to 4%, its historic low. One basis point is one hundreth of a percentage point. At its upcoming policy meeting on 5 August, the house is divided on whether more rate cuts are on the cards or is it time for temporary pause.

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