Against the backdrop of the COVID-19 pandemic, the economic stimulus packages announced by the national government are analysed and an attempt is made to identify the plausible fiscal and monetary policy coordination. When credit-linked economic stimulus packages are partial in its impact on growth recovery, an accommodative fiscal policy stance in the forthcoming Union Budget 2022–23 is crucial for the economy.
Globally, there is a growing concern about the tendency of segregating the monetary and fiscal policy while assessing the macroeconomic impact of deficits on economic growth outcomes. In the times of the COVID-19 pandemic, if the path towards fiscal consolidation is through public expenditure cuts than tax buoyancy, it can adversely affect the growth recovery.
We argue in the article that when liquidity infusion has limitations in stimulating economic recovery, high levels of deficit can be substantiated by enhancing public investment, especially in health and capital infrastructure, as it is a dual crisis—a public health crisis and a macroeconomic crisis. It is not only the levels of deficit that matter, the financing of deficits is also equally significant in times of crisis. Any normalisation procedure announcement in the forthcoming Union Budget 2022–23 to roll back the economic stimulus packages can adversely affect the economic growth recovery.
