Need 3-5 pc additional public expenditure to help growth stay in positive terrain: NCAER

Additional public expenditure of 3-5 per cent will be required by the central government in order to return to modest but positive economic growth in 2020-21, think-tank NCAER has said.

Prime Minister Narendra Modi had on May 12announced the raising of spending to Rs 20 lakh crore or about 10 per cent of India's GDP, to help the economy get back on its feet after weeks of coronavirus lockdown.

"The policy simulations done by the Quarterly Review of the Economy (QRE ) Team suggest that something like 3 per cent to 5 per cent of additional public expenditure will be needed to return to modest but positive GDP growth in 2020-21," NCAER said in its first coronavirus report for the first quarter of fiscal 2020-21.

The economic think tank said in case of no stimulus base-case for each 2020-21 quarter and the fiscal year, industry and services growth will stop shrinking by the end of December 2020 and show zero growth in the last quarter of the current fiscal.

"This base-case, hypothetical scenario then suggests that aggregate GVA (gross value added) would shrink by some 26 per cent in first quarter 2020-21 and by 13 per cent overall for the fiscal year in the absence of any specific coronavirus recovery assistance," it said.

Elaborating further, National Council of Applied Economic Research (NCAER) said building on no-stimulus, hypothetical base case, QRE research team developed four policy-based growth scenarios for government fiscal expenditures of 0 per cent, 1 per cent, 3 per cent, and 5 per cent over the fiscal 2020-21 budget presented in February 2020.

The economic think tank said if the central government expenditure is maintained as proposed in the Union Budget 2020-21, then in this scenario GDP will decline by (-) 4.1 per cent.

It further said if the central government increases public expenditure by 1 per cent of GDP, then in this scenario, the decline in GDP will be limited to (-) 1.9 per cent.

Likewise, if the government increases public expenditure by 3 per cent of GDP, then in this case GDP growth for 2020-21 will positive at 1.2 per cent.

In case if the fiscal stimulus is raised to 5 per cent of the GDP, then it will grow by 3.6 per cent in the current fiscal.

The nationwide lockdown began on March 25 and it is schedule to stay in place until May 17, although there has been some relaxation since May 4.

Moody's Investors Service on May 8 had said it estimates India's GDP growth to hit 'zero' in FY21 and pointed to a wide fiscal deficit, high government debt, weak social and physical infrastructure, and a fragile financial sector.