Ramesh Singh Summary: Public Finance in India- 4

Covid-19 Fiscal Stimulus

Introduction

To support a robust economic recovery from the impact of the COVID-19 pandemic and subsequent lockdown, the Government of India (GoI) and Reserve Bank of India (RBI) jointly announced a comprehensive stimulus package totalling Rs 29.87 lakh crore, equivalent to 15% of the GDP. Notably, 9% of the GDP stimulus was provided by the government through the Atma Nirbhar Bharat package.

Covid -19 Fiscal Stimulus

Fiscal Policy Approach

India adopted a phased and calibrated fiscal response to the pandemic instead of a single large cash outlay. The phased approach allowed policy makers to:

• target support to vulnerable groups and small businesses quickly;
• preserve fiscal space for future interventions as needs evolved;
• combine direct fiscal measures with credit guarantees and liquidity support to stabilise credit flows and avoid long-term solvency problems.

This mix of direct transfers, liquidity support, and guarantee-based instruments aimed to deliver short-term relief while limiting permanent fiscal deterioration.

Initial Phase Measures

1. Special economic and comprehensive package: Aimed to provide a cushion for vulnerable sections and small businesses. Included direct food transfers to the poor, livelihood programmes, guarantees, and liquidity-enhancing measures.
2. Measures to stimulate consumer demand and restore confidence as lockdowns were eased, with targeted support for contact-intensive sectors and employment schemes.

Atma Nirbhar Bharat 3.0

1. As economic recovery progressed, Atma Nirbhar Bharat 3.0 emphasised measures to boost investment and supply-side capacity.
2. It focused on instruments such as Production Linked Incentives (PLIs), enhanced capital expenditure, and initiatives to encourage investment in the infrastructure sector.

Atma Nirbhar Bharat

Fiscal Outlook for 2023-24

The Economic Survey 2022-23, prepared by a team of economists led by Chief Economic Adviser Anantha Nageswaran, reviews recent developments and outlines the near-term outlook for the Indian economy. The Survey synthesises indicators on growth, prices, public finances and external sector developments to assess the policy stance.

Economy

Growth

• India is the 3rd largest economy in the world in purchasing power parity (PPP) terms and the 5th largest in market exchange rates.
• Real GDP expansion was projected at 7% in 2022-23, with forecasts for 2023-24 ranging from 6.0% to 6.8% depending on global developments.
• The International Monetary Fund (IMF) projected global growth to slow to 2.7% in 2023, affecting external demand for India.
• Private consumption rebounded to 58.4% of GDP in Q2 2022-23, aided by recovery in contact-intensive services.

Fiscal Developments

• Retail inflation peaked at 7.8% in April 2022, above the Reserve Bank of India's upper tolerance limit of 6%.
• Gross tax revenue recorded a year-on-year growth of 15.5% from April to November 2022, led by robust collections in direct taxes and GST.
• Centre's capital expenditure increased to 2.5% of GDP in 2021-22, reflecting emphasis on infrastructure-led growth.

Monetary Management

• Gross non-performing assets (GNPA) ratio of scheduled commercial banks reached a seven-year low of 5%, indicating improved asset quality.
• Capital-to-Risk Weighted Assets Ratio (CRAR) remained healthy at 16.0%, signalling banking sector resilience.
• Authorities expressed confidence in meeting the fiscal deficit target of 6.4% of GDP for the current financial year, with an objective to reduce it to 4.5% of GDP by FY26.

Monetary

Social Infrastructure and Employment

• Budgetary allocation for education stands at about 2.9% of GDP, highlighting the focus on human capital.
• Out-of-pocket expenditure on health fell to 48.2% of total health expenditure in 2018-19, indicating gradual progress toward financial protection in health.
• Welfare schemes such as PM-Kisan and PM Garib Kalyan Yojana supported food security and income support for vulnerable households; these efforts have been noted by international agencies including the UNDP.
• The JAM trinity (Jan Dhan, Aadhaar, Mobile) combined with direct benefit transfers expanded formal financial inclusion for marginalised groups.
• Labour markets recovered beyond pre-Covid levels, with unemployment rates falling to 4.2% in 2020-21 as measured by available indicators.
• MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) continued to provide rural employment and income diversification opportunities.

Social Infrastructure and Employment

Agriculture and Food Management

• Private investment in agriculture rose to 9.3% in 2020-21, reflecting increased capital flows to the sector.
• Institutional credit to agriculture reached Rs 18.6 lakh crore in 2021-22, supporting production and investment needs.
• Minimum Support Price (MSP) for mandated crops was fixed at 1.5 times the all-India weighted average cost of production from 2018 to provide price support to farmers.
• Foodgrain production attained 315.7 million tonnes in 2021-22, marking sustained output levels.
• India took a lead in promoting millets internationally through the International Year of Millets initiative.

Agriculture

Industry

• India became the second-largest mobile phone manufacturer globally, reflecting gains in electronics manufacturing.
• Production-Linked Incentive (PLI) schemes were launched across 14 sectors, with an estimated capital expenditure effect of Rs 4 lakh crore over five years to integrate India with global value chains.

Services

• The services sector was expected to grow at 9.1% in 2022-23, driven by IT, financial services and contact-intensive segments.
• India ranked among the top ten services-exporting countries in 2021.
• India's e-commerce market was projected to expand at about 18% annually through 2025, supporting digital commerce and logistics sectors.

External Sector

• Merchandise exports totalled US$332.8 billion for April-December 2022, with increasing diversification to markets such as Brazil, South Africa and Saudi Arabia.
• Comprehensive economic partnership agreements were signed or progressed with partners including the United Arab Emirates and Australia in 2022 to deepen trade ties.
• India remained the largest recipient of remittances globally, receiving around US$100 billion in 2022; remittances are the second-largest source of external financing after services exports.
• India ranked as the 6th largest holder of foreign exchange reserves as of end-November 2022, providing external shock absorption capacity.

Climate Change and Environment

• India announced a Net Zero pledge to achieve net-zero greenhouse gas emissions by 2070.
• The target of 40% installed electric capacity from non-fossil fuel sources was achieved ahead of the 2030 timeline.
• The mass movement LIFE - Life style for Environment was launched to encourage sustainable consumption.
• The Government issued a Sovereign Green Bond Framework (SGrBs) in 2022 to mobilise climate finance for green projects.
• The National Green Hydrogen Mission was launched with long-term objectives for energy transition and a target horizon of 2047 for energy independence goals related to green hydrogen deployment.

Climate Change and Environment

Infrastructure

• Major initiatives active include the National Infrastructure Pipeline, National Monetisation Pipeline, Gati Shakti, National Logistics Policy, and development of Digital Public Infrastructure.
• Unified Payments Interface (UPI)-based transactions witnessed rapid growth of 121% in value and 115% in volume between 2019-22, reflecting digital payments adoption.
• Rural internet subscriptions increased by 200% between 2015 and 2021, supporting digital inclusion and rural connectivity.

Infrastructure

Challenges for the Global Economy

• The Survey highlights six major global challenges: (a) lingering COVID-19 disruptions to supply chains and human capital; (b) the economic effects of the Russia-Ukraine conflict; (c) policy rate hikes by central banks internationally; (d) the risk of global stagflation (high inflation and low growth); (e) an economic slowdown in China affecting demand and supply chains; and (f) the long-term consequences of pandemic-induced losses in education and income opportunities.

Concluding Notes and Policy Implications

Key policy takeaways embedded in the above assessments include the need to maintain fiscal discipline while prioritising capital expenditure, strengthen social safety nets and health systems, accelerate structural reforms to attract investment (including through PLIs and infrastructure monetisation), and combine monetary prudence with measures to preserve financial stability. Continued focus on digital public infrastructure, climate resilience, and targeted support for agriculture and MSMEs remain central to achieving sustained and inclusive growth.