Coronavirus crisis: ₹10 lakh crore stimulus need of the hour, experts estimate

Covid-19: Former chief economic adviser in the finance ministry, Arvind Subramanian, has said the government will have to spend Rs 10 lakh crore to deal with the disruption caused by the pandemic.

Economists and business leaders are pitching for a massive Rs 10 lakh crore stimulus package to support people who have lost their livelihoods and businesses on the verge of collapse because of the coronavirus crisis.

People look up at a screen and electronic ticker board, not pictured, outside the Bombay Stock Exchange (BSE) building in Mumbai.(Bloomberg)

Former chief economic adviser in the finance ministry, Arvind Subramanian, has said the government will have to spend ~10 lakh crore, 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, said a Mint editorial that called for a ~10 lakh core stimulus on March 29.

Subramanian has recommended five ways of financing additional expenditure over a period of one year, including borrowing directly from the Reserve Bank of India (RBI) or monetising debt.

The government should announce a package of about Rs 60,000 crore to finance an income support of Rs 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 , said.

“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 proposed that the government should offer a fiscal stimulus to businesses, amounting to 2% of GDP or roughly Rs 4 lakh crore. Garg had argued in a blog post that India would lose about 4% of GDP during the lockdown or about Rs 8 lakh crore.

The Federation of Indian Chambers of Commerce and Industry (Ficci) said there is a need for stimulus of as much as Rs 9-10 lakh crore. “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.

In an article by 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 Rs 1-1.5 lakh crore to finance the stimulus. The government may have to mobilise resources by raising taxes and cutting subsidies, giving an additional Rs 1-1.5 lakh crore. He also suggested foreign borrowing, from official sources and NRIs of about Rs 1-1.5 lakh crore. Reducing other expenditure could also yield a similar amount. For instance, expenses on recently initiated projects can be cut, while those nearing completion can be funded.

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

The Confederation of Indian Industry (CII) on Wednesday said it aligned with the government’s view that the shutdown should be lifted as early as feasible.

“It is important to safeguard the macro fundamentals to ensure that the country does not suffer significant rating downgrades, and potential flight of capital,” CII said in a statement, while pitching for a fiscal support package for FY21, limited to 2% of the GDP, in addition to the spending made under Pradhan Mantri Garib Kalyan Yojana.