From Crisis to Control: India’s Post-Pandemic Stimulus Earns Praise for Inflation Management, 2024

In the wake of the global pandemic, India’s fiscal stimulus measures have been hailed as well-managed and effective, according to a recent study conducted by the Reserve Bank of India (RBI). The study reveals that India’s post-pandemic fiscal stimulus had a minimal impact on inflation compared to other major economies around the world. These findings highlight the prudent and strategic approach taken by the Indian government and the Reserve Bank of India in mitigating the negative effects of the pandemic.

Study Highlights:

The RBI study analyzed the impact of pandemic-induced fiscal expansions on inflation in both advanced economies and emerging market economies. It considered supply-side factors and found that countries with larger fiscal stimulus measures experienced higher post-pandemic inflation on average. However, in the case of India, the impact on inflation was significantly lower compared to countries like the UK, USA, Eurozone, and Russia.

India’s Approach:

The Indian government, in collaboration with the Reserve Bank of India, adopted a judicious mix of fiscal and monetary policies to tackle the challenges posed by the pandemic. A comprehensive package equivalent to 10 percent of India’s GDP was announced to mitigate the negative impact. This approach aimed to provide support to various sectors of the economy and ensure the well-being of businesses and individuals affected by the pandemic.

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Fiscal Consolidation:

Despite the substantial measures taken, the Indian government recognized the need for fiscal consolidation in the long run. The Union Budget for 2021-22, announced in February 2021, outlined a gradual path to lower the fiscal deficit to 4.5 percent of GDP by 2025-26. This commitment to fiscal discipline demonstrates the government’s intent to maintain economic stability and sustainability.

International Comparisons:

The study also compared the fiscal stimulus efforts of various countries. While the US government provided a fiscal stimulus of over 20 percent of GDP, the UK and Japan offered stimulus packages amounting to over 15 percent of their respective GDPs. The extent of direct fiscal stimulus and liquidity support varied across economies, with advanced economies generally providing higher stimulus packages than emerging market economies.

India’s post-pandemic stimulus measures have been commended for their effective management and minimal impact on inflation. The study conducted by the RBI showcases the importance of a balanced and strategic approach to fiscal policy during times of crisis. The Indian government’s efforts to provide comprehensive support to the economy, along with its commitment to fiscal consolidation, position India well for a resilient and sustainable recovery post-pandemic.