PremiumNEW DELHI: State chief ministers, during their virtual meeting with Prime Minister Narendra Modi on Saturday, demanded a fiscal stimulus package from the Centre and more financing options to tide over the financial crunch while they fight the covid-19 outbreak.
“RBI reduces the repo rate to 4.4% but the coupon rate for 15-year Kerala SLR bonds bid by the banks is 8.96%. It is high time India Government follow the course adopted by all major economies for stimulus- borrow directly from the Central Bank and for the time ignore FRBM rules," Kerala finance minister Thomas Isaac tweeted.
West Bengal demanded that the Centre should announce a stimulus package of 6% of GDP and let industrialists in the state contribute to the chief minister’s relief fund. Telangana and Rajasthan demanded a task force on quantitative easing by the central bank along with a stimulus package for states.
Telangana said the Centre should raise the FRBM limit for states to 6% of GSDP from 3% of GSDP at present and defer debt servicing for 3 to 6 months.
The Centre has already announced a host of measures to augment revenue of states. State governments have been directed to use ₹31,000 crore accumulated in the Building and Other Construction Workers Welfare Fund--a central government fund--to support 35 million registered construction workers.
State governments have also been advised to utilize the funds available under the district mineral fund worth ₹25,000 crore for the purposes of testing, medical screening and prevention measures for containing the spread of the virus. The Centre has released ₹17,287 crore as first installment on account of its share of the state disaster response mitigation fund (SDRMF) as well as revenue deficit grants in order to enhance financial resources of states. The Centre also last week released a ₹15,000 crore package to help states with their emergency response and health system preparedness. However, this may not be enough given the deepening crisis at hand.
International Monetary Fund chief economist Gita Gopinath last week said while a substantial fiscal stimulus package will push up the fiscal deficit and debt-to-GDP ratio of economies, lack of proactive fiscal policy by governments could put them in a worse place with the collapse of economic activity.
“If you don’t do what you are doing now, you can actually end up in a worse situation because economic activity will collapse so severely that your debt-to-GDP will be even worse. So things could be worse if you didn’t do what is needed right now. I think that is something everybody recognizes at this point," Gopinath said in a popular US television chat show.
