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Focus: GS-III Indian Economy


  • Before the announcement of the Atmanirbhar Bharat package, India lagged significantly behind comparable developing countries that are similar in GDP per capita, state capacity, and structure of the labour force.
  • For example, the total Atmanirbhar package is billed at 10% of GDP, but others have estimated that the new fiscal outlay, including the Pradhan Mantri Garib Kalyan Yojana, of March, the direct fiscal aspects of Atmanirbhar Bharat, and the latest extension of free rations under the Public Distribution System, is around 1.7% of GDP.
  • Most other demand-side measures involve the frontloading, consolidation, or rerouting of existing funds.

On cash transfers

  • The World Bank reports that, on average, cash transfers amount to 30% of monthly GDP per capita, reaching 46% for lower-middle-income countries.
  • Countries have also significantly expanded coverage of their cash transfer programmes from pre-COVID-19 levels.
  • India could take these actions of other countries into account in decisions about expanding existing transfer programmes or even creating new ones.

Enhance NREGA

  • Of the World Bank’s list of measures taken across 173 countries, half were cash-based. Most of the rest related to food assistance (23%) or waiver/postponement of financial obligations (25%).
  • Only 2% related to public works, a clear indication of the popularity of cash transfers over public works for income support, perhaps in part due to concerns over physical distancing.
  • India has been a leader in employment guarantee policies with its flagship MGNREGA programme. This is the right time to expand entitlements in this programme as well as introduce an urban version of the programme, as many have called for.

Steps in the developing world

  • Developing countries are resorting to drastic means to finance COVID-19 responses – for e.g., central banks in many emerging economies are experimenting with purchases of public and private bonds in the secondary market (quantitative easing) or directly purchasing government bonds on the primary market (monetising the deficit).
  • In India- Debate continues over whether the Indian government should invoke the “escape cause” in the Fiscal Responsibility and Budget Management (FRBM) Act, to enable the central bank to directly finance the deficit.
  • In India, one reason for the subdued fiscal response and the resort to monetary measures is likely a concern with the debt-to-GDP ratio, which is higher than for most countries in our set.
  • Additional fiscal outlay — in the form of cash and in-kind transfers and expanded public works schemes — would save lives and jobs today and might prevent a protracted slowdown. Not spending more now, therefore, might only worsen the debt-to-GDP ratio if growth remains depressed.

-Source: The Hindu

March 2024