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Chorus grows for ₹10 trillion stimulus as lockdown ravages economy 

Live Mint , Apr 10, 2020

Economists and business leaders are pitching for a massive ₹10 trillion fiscal stimulus package to support people who have lost their livelihoods and businesses on the verge of collapse because of the coronavirus crisis, a suggestion first made by Mint in an editorial on 29 March.

Former chief economic adviser in the finance ministry Arvind Subramanian has said that the government will have to spend ₹10 trillion, an amount equivalent to 5% of India’s gross domestic product, to deal with the disruption caused by the pandemic.

While money thrown about tends to inflate asset values in the West, in India, drone drops must cover mostly those who will shop rather than invest, the Mint editorial had said.

Subramanian has recommended five ways of financing additional expenditure over a period of one year, including borrowing directly from RBI or monetizing debt. Mint had proposed that a part of the fiscal gap could be monetized as a last resort.

The government should announce a package of about ₹60,000 crore to finance an income support of ₹2,000 a month for three months for about 100 million workers who have lost jobs on account of the lockdown, Subhash Chandra Garg, a former secretary in the department of economic affairs and policy analyst, said in an interview.

“The welfare package announced earlier was for non-workers. The lockdown has serious consequences. We cannot allow people, who have lost jobs and have no savings, to suffer," Garg said. He also proposed that the government should offer a fiscal stimulus to businesses, amounting to 2% of GDP or roughly ₹4 trillion. Garg had argued in a blog post on Tuesday that a 21 day-lockdown with two-thirds of production lost means that India would lose about 4% of GDP during the period of lockdown. This, he said, amounts to loss of about ₹8 trillion.

Industry lobby Federation of Indian Chambers of Commerce and Industry (FICCI) said that there is an immediate need for a stimulus of as much as ₹ 9-10 trillion.

“This money needs to be injected for relief and rehabilitation across all levels of the economy, including people at the bottom of the pyramid, informal workers, micro, small and medium enterprises and large corporates," FICCI Director General Dilip Chenoy said.

Both Subramanian and Garg pitched for RBI to directly lend to the government at a time borrowing from the market or from abroad may not be viable.

In an article published in Business Standard on Thursday, Subramanian, along with Johns Hopkins University Professor Devesh Kapur, said the ‘controversial’ suggestion of monetary financing or the central bank “printing money," that is, directly buying G-Secs and state government bonds could fetch ₹ 1-1.5 trillion to finance the stimulus. The government may have to mobilize additional resources by raising taxes and cutting subsidies, which could give additional ₹1-1.5 trillion. He also suggested foreign borrowing, from official sources and non-resident Indians (NRIs) to the tune of around ₹1-1.5 trillion. Reducing other expenditures could also yield up to ₹1-1.5 trillion. For instance, expenses on recently initiated projects can be cut, while those nearing completion can be funded, Subramanian argued.

According to Garg, barring farm sector, essential goods and services and e-commerce businesses where it was feasible to work from home, the rest of the economy is totally shut.

Industry body Confederation of Indian Industry (CII) on Wednesday said it was fully aligned with the government’s view that the shutdown should be lifted as early as feasible, in a safe and calibrated manner. “It is important to safeguard the macro fundamentals to ensure that the country does not suffer significant rating downgrades, and potential flight of capital," the industry body said in a statement, while pitching for a fiscal support package for FY21, limited to 2% of GDP, in addition to the spending made under Pradhan Mantri Garib Kalyan Yojana.