India needs to contribute 3% of GDP for losses due coronavirus: Dr C Rangarajan

Dr C Rangarajan

India would need to contribute 3 percent of the GDP or Rs 6 Lakh crore as a stimulus to coronavirus, says Dr C Rangarajan, the veteran economist and former governor of the Reserve Bank of India.

Dr C Rangarajan

“The total cost of these expenditures will be more in the region of 3 per cent of GDP rather than 5 per cent of GDP and that would mean roughly about six lakh crore because the total GDP is now, at current prices, is about Rs 200 lakh crore,” says Rangarajan, adding that “none can be sure of what the total amount is” and it could well “be debated because it all depends on how long the battle against the virus has to be fought.”

He further said that the government’s expenditure to fighting coronavirus crisis will largely bifurcate in three buckets: “One is the medical and healthcare expenditure to combat the virus and bring it down. This will include expenditures on extension of hospital facilities, employment of additional medical and para medical staff, incurring the costs of testing and funding the purchases of accessories needed such as ventilators and personal protective equipment (PPEs) for the frontline health care workers.”

Talking about the other set of expenditures, incurred by the government, he says, “Centre has to alleviate the problems of people who have been thrown out of employment, including migrant labour and other vulnerable groups. These people have to be provided with some relief. It is going on and perhaps more needs to be done and these would be the second set of expenditures.”

According to him the third set of expenditures are those that are required to stimulate the economy. “These in turn break up into two parts. One, the expenditures that the government will itself incur and the second set of expenditures being those that the government may need to incur to support certain sectors that have been severely affected by the virus” he adds.

Dr Rangarajan state the total expenditure the centre is required to incur has to be viewed from the point of not only the additional expenditures under the current extraordinary circumstances but also the expenditures mentioned in the budget that could not be incurred because of falling revenues. The rough idea, he says, “was that the real income will grow by 6 per cent and inflation will be 4 percent, therefore nominal income will grow by 10 percent. But the expectation now is that perhaps the growth rate will now be between 2 and 3 percent though the IMF estimate is 1.9 percent growth rate for India.”

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