An Alternative Fiscal Package to Mitigate India’s COVID Economic Crisis

Abstract

This article examines briefly why the Indian economy was slowing pre-pandemic. It further argues that India’s lockdown caused an unprecedented economic crisis; worse, India’s economic policy response was poor in its overall architecture in terms of the balance between fiscal and monetary policy measures. It does this not only for India but compares it to the international evidence on peer country government response, with superior consequences in the latter. It argues that had the fiscal response been more commensurate with the depth of the crisis and at least somewhat comparable to that of emerging market economies, the extremely adverse impact on employment, earnings and wages could have been mitigated. It closes by offering what could have been an alternative fiscal package for India. An adequate fiscal response, it argues, would have revived aggregate demand in the product market, and through it revived the labour market—in a classic Keynesian manner.

JEL Codes: H3, H41, H51, H54, H62, I15, J6, J30