How the Centre Could Provide Stimulus to COVID-19 Battered Economy

With the Indian economy battered by the ongoing coronavirus pandemic and the nationwide lockdown, the Centre is open to considering suggestions from economists and experts that could help the government with resources that could provide a sizeable fiscal stimulus.

One of the suggestions the government is reportedly exploring at the moment is the pledging the Centre’s shares of state-run companies and PSUs with the Reserve Bank of India.

The recommendation was proposed by economist Ajit Ranade who suggested that the pledging the government’s shares of PSUs with the Reserve Bank of India or an association of banks would allow the Centre to accumulate resources up to 10% of the Indian Gross Domestic Product (GDP).

This could eventually help in providing the much need stimulus to the economy in times of such crises. Though the suggestion seems feasible on paper, it is yet to be examined thoroughly before being put in action.

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In the same line, Haseeb Drabu the former finance minister of Jammu and Kashmir also suggested that instead of RBI, State Bank of India (SBI) could lead a consortium of commercial banks to lend to the Centre against the shares of PSUs.

However, the drawback with the consortium of commercial banks offering loan against shares is that there are specified norms led by the capital market regulator which would eventually result in a lower amount for the Centre to provide stimulus to the economy.

With the fiscal outlook looking pretty bad with possibilities of a poor investment-grade sovereign rating for the country, the Centre is looking for off-the-shelf solutions to provide a massive economic stimulus package.

For any clarifications/feedback on the topic, please contact the writer at viswanathan.v@cleartax.in