ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fiscal Policy and Growth in a Post-COVID-19 World

Why was India’s growth slowing in the run-up to COVID-19 and how much fiscal space was used to stem the slowdown? What is the nature of India’s economic recovery from COVID-19? How does the budget seek to balance fiscal support while reducing the deficit? What was the underlying fiscal impulse in the COVID-19 year and what is it budgeted to be next year? What are the implications for debt sustainability and fiscal–monetary coordination? Finally, what are some paradigm changes the budget seeks to embark on and why is execution so crucial this time? This essay seeks to answer these questions to make sense of growth and fiscal dynamics in a post-COVID-19 world.

 

To understand the macroecono­mic context of India’s first post-COVID-19 budget, it is important to understand both the evolution of India’s economy in the pre-COVID-19 years and the nature of the economic recovery from COVID-19.

First, gross domestic product (GDP) growth averaged almost 7% between 2014 and 2020. Yet, that average masks significant temporal and sectoral heterogeneity. Growth averaged almost 8% between 2014 and 2017—helped by a positive terms of trade shock from lower oil prices—before slowing discernibly for three years to 4% in the pre-COVID-19 year.

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Updated On : 27th Feb, 2021

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