COVID-19 and India’s fiscal conundrum
4 years, 8 months ago

COVID-19 and India’s fiscal conundrum

The Hindu  

As the COVID-19 pandemic continues to ravage economies across the world, policymakers are desperately seeking effective ways to mitigate its economic effects. However, with a government debt of around 72% of GDP, which is comparatively higher than all other emerging markets in the region, India’s fiscal room to opt for a massive stimulus appears much more limited. Any aggressive stimulus spending will not only result in a surge in India’s gross public debt but will also negatively impact its credit ratings, highlighting the country’s fiscal conundrum. Even if the Fiscal Responsibility and Budget Management constraints are relaxed, given India’s limited demand for domestic bonds, there is a need to seek capital flows to finance its additional stimulus by encouraging foreign investment in government securities. Given the acute constraints on fiscal policy in India, there is clearly a need to start re-prioritising expenditures away from low-priority, unproductive areas towards greater spending on health and social safety nets for low-income households.

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