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The economic support measures announced on Monday by finance minister Nirmala Sitharaman caught many of us by surprise. Not because the economy wasn’t in need of help, but because there was little hint of such a package in the works. What did not leave anyone wide-eyed, though, was the nature of the aid on offer. Government backstops for loans given to borrowers in covid-hit sectors, especially health and tourism, an expansion of an emergency credit guarantee scheme for small and medium businesses, a new credit cover for advances to micro-finance institutions, enhanced export insurance and reform-linked assistance to power distribution companies formed the bulk of it. All taken together, it was held up as a package worth 6.28 trillion. This would seem impressive at first glance. But most of the Centre’s commitments are contingent liabilities that may not arise at all. Excluding these, the actual outlays are modest. Estimates vary, but their near-term fiscal impact is clearly well under 1 trillion, or less than 0.5% of India’s gross domestic product (GDP). This has confirmed a predilection for credit provisions as the ministry’s principal response to covid distress, a supply-side intervention that seems to encode a rejection of Keynesian demand stimulation, with direct spending reserved only for absolute must-dos such as food hand-outs, healthcare infrastructure and rural internet connectivity. Cash give-aways seem like a no-no in the Centre’s book.

This fiscal conservatism has been a consistent feature of the Narendra Modi government’s set of economic policies. Last year’s Atmanirbhar rescue plan, for instance, was pegged at a staggering 10% of GDP, but involved state expenditure of just a bit above 1% of GDP. It was largely a revenue shortfall that pushed our fiscal deficit to 9.2% of GDP, and so last year’s stimulus impulse was weak. If this year’s gap overshoots our 6.8% target, as seems likely, then it won’t be on account of an expansionary shift ordained by the ravages of a pandemic. While much of the once fiscally-hawkish world flirts with modern monetary theory, which imposes no restraint other than inflation on fiscal easing and cash creation to revive growth, India has opted to be watchful of excessive public debt, already about 90% of GDP. This has its merits. A tight fist on expenses would save us from both the risk of future instability and a heavier tax burden once the bills show up for what we spend now. Priming a pump to spew cash around, as Keynes would have us do, is easy. It’s the after-effects that torment. It was barely a decade ago that we saw profligacy throw prices out of control—to the Manmohan Singh administration’s grief.

The irony is that our fiscal approach could yet stumble on poor economic performance, unless we achieve a recovery that hauls private investment out of its slump and makes up for flagging growth since 2017-18. We need a sharp revival in overall demand. The use of a classic stimulus, however, would probably not conform with the government’s broad outlook. In a conservative paradigm, money for doing nothing is a moral hazard, while a loan encourages hard work. The worry today is that the Centre’s credit-default coverage will have too little effect too late. Lending involves lender discretion and debtor obligations, after all, and even if borrowers intending to pay back foresee bright business prospects, the scheme would take rather long to multiply people’s incomes. Also, our central bank has been easing loans anyway. With our economy in need of a snappy direct boost, New Delhi’s relief hamper looks off-target again.

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