The financial stimulus of the center “is not enough”; the fiscal deficit can rise to 14%: former RBI Governor D Subbarao

Subbarao said it is quite clear that the government needs to spend more, as it is a moral and political imperative. (File Image)

Maintaining that the combined fiscal deficit of the Center and the states can rise to 13-14 percent this fiscal, the former governor of the RBI, Duvvuri Subbarao, said on Sunday the financial stimulus announced by the Center on March 26 because of the blockade to contain the spread of COVID -19, “not enough.” In a webinar titled “The Challenge of the Crown Crisis: Economic Dimensions” organized by the city-based Manthan Foundation, Subbarao said the Center should limit its loans, as open loans will have negative consequences, how to raise interest rates. .

“The government announced the fiscal support package of 0.8 percent of GDP. Is that enough? No, not enough when it was announced on March 26. Now it is seen even less. In fact, the government needs to spend more. And spend more on three things. The first expense is to expand and expand livelihood support, ”said Subbarao.

He said that since March 24, when the blockade was imposed across the country, millions of households have become vulnerable, and therefore livelihood support must extend to many more families, as most of their savings have been exhausted. “The government needs to cover more homes, give more per home and give much more time per home. That is the first challenge in government spending, “he said.

On March 26, the Ministry of Finance released a budget package of Rs 1.70 lakh crore that involves free food grains and cooking gas for the poor for the next three months. Subbarao said it is quite clear that the government needs to spend more, as it is a moral and political imperative. To spend more, the government needs to borrow more. He said he disagreed with the view that since this is an extraordinary and unusual crisis, the government should not be tied by setting debt limits.

“The combined fiscal deficit of the center and state governments for this fiscal year as budgeted is 6.5 percent of GDP. Due to the loss of income due to the blockade, due to the decrease in nominal GDP due to the blockade, the fiscal deficit will exceed 10 percent of GDP. The additional loans will now bring the fiscal deficit to the 13-14 percent of GDP range. That is extremely high and will have all the negative consequences of the high fiscal deficit, “he said.

According to him, the internal financial sector, which is under deep stress, will be under “deeper stress” by the time the COVID-19 crisis ends, although it sees some positive aspects in the situation, such as the fall in crude oil prices and excellent agricultural performance. . Stressing that the world has to live with coronaviruses for some time, Subbarao said that both the center and the states are working together to contain the pandemic.

“The dilemma (of lives and livelihoods) is the most acute for India, given our weak medical infrastructure and high population density. Any gap in prevention can mean the loss of millions of lives. On the other hand, a strict blockade to control the pandemic can mean millions of livelihoods. This is a very difficult balancing act. Particularly for India, since our economy is in bad shape, Subbarao said.