ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Garnering the Fiscal Stimulus

A Bargaining Game

The share of resources distributed in the stimulus package to the farmers and labourers is very less as compared to other stakeholders of the economy. As public policy is influenced by bargaining power through intense lobbying, low distribution of resources towards farmers and labourers could be due to their low bargaining power. Collective action is required to bargain or lobby for resources. The farmers are adversely placed with regard to collective action because the transaction cost of organising collective action is higher but their ability to bear the cost is lower. The industry is placed in a much better position on both these counts. The inability of farmers to provide critical minimum resources for collective action may further weaken their bargaining position.

 

The coronavirus pandemic that has hit the world in general and India in particular has put the Indian economy in a crisis situation. A forced countrywide lockdown to flatten the curve concomitant with contracting world demand of Indian goods in the next two to three quarters implies that domestic demand would be the principal stimulus of the Indian economy. The clamour for fiscal stimulus from the government is increasing day by day, even though the finance minister has provided support measures to the tune of `1.70 lakh crore as welfare measures. These measures include free health insurance to front-line health workers, free food and gas, cash transfers and additional security measures for affected workers.

This package amounted to 0.8% of the gross domestic product (GDP), which is quite low compared to most other countries. Subsequently, the finance minister had expanded the stimulus package to 10.8% of the GDP (Table 1, p 17). Most of it amounted to increasing the capacity of the firm to borrow at lower cost of finance. The package has limited committed expenditure by the government. Given the fact that the Indian economy was already passing through a recessionary phase before the onset of the pandemic, and collection from goods and services tax (GST) was not up to expectation, the central government is not well placed in respect of revenue collection. However, with a comfortable foreign exchange position, India is probably in a better place to borrow or pay the import bill than many other emerging economies. Most economists argue that the size of the economic stimulus needs to be hiked with increased committed expenditure/transfer by government so that demand is generated in the economy.

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Published On : 15th Feb, 2024

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