A niggardliness that is economically unwarranted (The govt. must immediately start spending big, and not be miserly)

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 A niggardliness that is economically unwarranted (The govt. must immediately start spending big, and not be miserly)

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• How lockdown happened: Those who oppose the pan-India lockdown argue that by a mix of steps like social distancing, self-quarantining by elderly, and selective lockdowns (e.g. Wuhan, China), India could have managed. But a pan-India lockdown surely needed all supporting measures to be announced in parallel. That never happened, and a mass panic exodus started. The Govt. claimed it was fake news that triggered it, and the Supreme Court accepted the logic!
• Poor response till date: The Finance Minister announced some measures, but they were too little to matter.

1. India has imposed a massive lockdown, quite unlike any other nation
2. India also has given literally nothing to those impacted, quite unlike others – in the US, the 66 lakh unemployed (now) can take unemployment benefits
3. US govt announced a relief package worth 10% of GDP (more than $20 trillion), while India's package was just 1% of GDP!
4. New relief is little – most of it is repackaging of existing schemes. Actual spending is just Rs.80,000 crore (not Rs.1.7 trillion)
5. Nothing was given to migrant workers particularly.

• Possible steps now: A good way out is to give Rs.7000 per month for 2 months, to bottom 80% households in India, and more rations also. Total cost will be approx. Rs.3.66 trillion. This is financially possible to do.

1. Let the fiscal deficit grow.
2. Two things may happen – inflation will grow, and a balance of payment problem will arise.
3. Inflation can be fought easily, by giving adequate rations to people via the PDS network (as foodgrain buffer stocks are plenty)

• Foodgrains situation: India has 58 m tonnes of foodgrain stocks today, of which only 21 m T are needed as buffer-cum-operational stocks. The surplus 37 m T can be used for enhanced ration supply, or cushion against inflation.

1. If the April Rabi harvest is safely managed, the stocks will enhance further.
2. One solution is to use MGNREGA for harvesting needs in Rabi.
3. Demand for many goods will rise in response (once relief is given) – manufactured goods etc.
4. Hence, inflation is not a worry at all if fiscal deficit is raised.

• One more anti-inflationary factor: Normally, when fiscal deficit is used to finance demand, then the later total demand seen in the system is a high multiple of the initial demand. Now, in pandemic times like today's, social distancing will continue. Hence, later demand won't be as high as otherwise. Hence, inflation may not rise due to that, as much as feared.
• Other measures with govt.: If inflation persists strongly, then prices of non-rationed commodities also may rise fast. That will be due to pure speculation. The government can simply reduce the high petro prices, and contain inflation.
• Balance of Payment front: The worry is that scared investors may take capital out of India (capital flight). Ever since rupee has fallen, some flight has happened. That is due to the rush to dollars, during pandemic times (safe haven). It's a separate matter that the US itself is battered by COVID-19. 
• Forex of $500 b: India has approx. half a trillion dollars worth of forex. Use them if rupee sinks. Else, simply put restrictions on capital flight.
• People stop, Capital go: Today, cross-border movement of people is stopped, but not capital's. So people can continue to suffer, but not owners of capital! A sad situation, unless rectified by higher fiscal deficit.
• Give them their money: Center must give funds to states to battle this pandemic. Double their fiscal borrowing limit, and transfer funds quickly.
• Summary : The time to give a big fiscal boost to Indian economy is right now, without worrying about the potential inflationary impact, which will be manageable.

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