The time for a fresh fiscal stimulus is now

India’s Chief Economic Advisor K V Subramanian’s fresh take on fiscal stimulus is perplexing. He acknowledges the need for a further fiscal push, but prefers to sit out until a Covid-19 vaccine comes through and when recovery begins. As several economists, Keynesians or otherwise would agree, fiscal stimulus’ best act isn’t during booms but economic busts and hence countries are going the whole hog. The 28-member European Union, despite bitter differences, just signed a $826 billion deal, of which about half comprises grants that countries need not repay.

In contrast, India’s first tranche of Rs 21 lakh crore had little by way of fiscal stimulus. It was presumed the government was holding up aces in reserve, but a further delay can turn what is now a growth capital into a bailout package with the latter having undesirable consequences. As Keynes noted, master economists must study the present in the light of the past for the purposes of the future.

They must defeat the dark forces of time and ignorance. But in hindsight, just when the government needed to act during critical moments like the NBFC crisis, rescuing MSMEs and banks, it persuaded itself that the timing wasn’t right and the proof of its delayed action is evident. Time is an absolute in economic theory and influences the cost of money and thereby the value of goods and services. Consider the price of gold now and last year and you get the picture.

If you apply it in an institutional setting, the element of time is matchless, something policymakers need to master and avoid procrastination. Economists’ finest hour also comes during extreme uncertainties like now, when decision-making hinges on a game of skill and chance. Subramanian, a votary of behavioural economics, knows the consequences of a timely fiscal push and how government expenditure or the lack of it can run or ruin the real economy including production, employment and savings. So the government must overcome the ‘Principal of Unripe Time,’ where for critical decisions, now is never the moment and then suddenly it’s too late.