IMF has forecast that India’s economy in the current financial year will expand by 1.9%, the lowest level in about three decades. A couple of other private sector forecasts say the pace of expansion will be slower than 1.9%, or output could shrink.
An economic crisis of this scale needs a fiscal package, carefully designed and large enough, to back the monetary measures which have already been announced. So far, we have got a set of measures, amounting to less than a percentage point of GDP, to cushion the hardship of some of the most vulnerable segments of the population. That was necessary and welcome.
Also read: India to grow 1.9%, global economy to shrink 3%, says IMF
But what’s been missing is the next dose of fiscal measures. Given that India has put in place one of the harshest lockdowns, the economic cost will also be high. This comes on the heels of three successive years of a slowdown in economic momentum. Therefore, timeliness of a fiscal package will be an important feature in determining its efficacy and size. The longer the government waits, greater will be the damage to the private sector.
For many firms which shut, subsequent reopening will be impossible, and long term damage will have been inflicted on the economy. Therefore, it’s important that a fiscal package gets its timing right to be effective. The next fiscal package is overdue. “Better late than never” is an adage that doesn’t apply in this case; late will be the same as never.
