Fiscal Situation of India in the Time of COVID-19

27 Pages Posted: 10 Apr 2020 Last revised: 28 Apr 2020

Date Written: April 12, 2020

Abstract

COVID-19 pandemic, a health crisis, has rattled the global economy. In this situation, the Indian government has announced a fiscal package worth INR 1.7 trillion, but there are arguments for even more spending. Using data from a cross-section of countries, we first estimate the relationship between fiscal spending and COVID-19 spread, economic stringency, and macroeconomic factors. Our estimates suggest that India can spend 2.2-4.8 percent of its Gross Domestic Product (GDP), based on the global benchmark. Accounting for tax and output shortfall due to the pandemic, we project the fiscal deficit of the central government can be as high as 8.4 percent, in the most pessimistic case, while 3.7 percent in a relatively optimistic case. We finally argue that subsidy rationalization is the way forward to fund the much-needed health expenditures and transfers while maintaining the fiscal discipline

Keywords: Fiscal deficit, Debt

JEL Classification: E62, O23

Suggested Citation

Balajee, Anuragh and Tomar, Shekhar and Udupa, Gautham, Fiscal Situation of India in the Time of COVID-19 (April 12, 2020). Indian School of Business. Available at SSRN: https://ssrn.com/abstract=3571103 or http://dx.doi.org/10.2139/ssrn.3571103

Anuragh Balajee

CAFRAL ( email )

C-8, 8th Floor, Reserve Bank of India
Bandra-Kurla Complex, Bandra (East)
Mumbai, Maharashtra 400051
India

Shekhar Tomar

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

HOME PAGE: http://shekhartomar.com

Gautham Udupa (Contact Author)

CAFRAL ( email )

C-8, 8th Floor, Reserve Bank of India
Bandra-Kurla Complex, Bandra (East)
Mumbai, Maharashtra 400051
India

HOME PAGE: http://https://sites.google.com/site/gautamudupa/home

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