A study on India’s Fiscal policy in response to the

pandemic of COVID-19
Geet Sanganeria Student
Atlas SkillTech University

ABSTRACT
The Covid-19 epidemic has had a significant impact on the Indian economy, including supply
chain disruptions, decreased consumer demand, and employment losses. As a result of the crisis,
the Indian government has undertaken a variety of fiscal policy measures to strengthen the
economy and lessen the impact on companies and individuals. The goal of India’s fiscal policy in
response to COVID-19 has been to protect the affected members of the society, ease corporate
growth, and promote economic growth. This paper aims to study the impact of the pandemic on
the fiscal policy of India along with the key objectives of the policy in response to the pandemic
of COVID-19. Since, this paper is descriptive in nature, it is analyzed using theoretical data
through secondary sources. The paper also discusses various schemes launched by the
government for the relief of the disadvantaged members of the society. In conclusion, the Indian
government's fiscal policy reaction to the Covid-19 outbreak has been substantial, with measures
designed to assist enterprises, people, and the economy as a whole. Although the epidemic has
had a severe impact on the Indian economy, the government's actions are likely to help to a
gradual recovery. .(Prabheesh 2021)

KEYWORDS
Fiscal policy, India, COVID-19 pandemic, government.

INTRODUCTION
The Covid-19 epidemic sheds fresh insight on the relationship between monetary and fiscal
policy. The abrupt and significant pandemic-induced recession has increased the demands on
fiscal and monetary policy, necessitated better coordination of domestic policy, and increased the
use of central bank balance sheets. Even if the prognosis for inflation is more variable among
jurisdictions, the near-term macroeconomic concerns are likely to endure, and growth is
anticipated to be muted.(Pathak 2021)

The COVID-19 epidemic has significantly impacted the Indian economy, and as a result, the
Indian government has put in place a number of fiscal policy measures to lessen those impacts
and aid in the economy's recovery. A relief package totaling Rs. 1.7 lakh crore ($22.6 billion)
was part of the government's early response and was intended to help the most vulnerable and
impoverished members of society right away. Cash transfers, free food grains, and cooking gas
cylinders for individuals in need were all included in the program. A stimulus programme worth
Rs. 20 lakh crore ($266 billion), or around 10% of India's GDP, was announced by the
government in May 2020. The package of policies includes things like increased expenditure on
infrastructure projects, loan guarantees for small firms, and liquidity support for the banking
industry. Moreover, in order to stimulate the economy and guarantee the efficient operation of
financial markets, the Reserve Bank of India (RBI) has undertaken a number of monetary policy
measures, such as rate reductions and liquidity support. The overall goals of India's fiscal policy
reaction to COVID-19 have been to protect the most disadvantaged members of society, ease
corporate burdens, and promote economic growth. Nevertheless, as the pandemic is still evolving
and its effects on the Indian economy are still unknown, it is still ambiguous how well these
efforts will work in reducing the epidemic's economic impact.(Narayan 2021)

RESEARCH QUESTIONS
Q1) What was the impact of COVID-19 on the fiscal policy of India?
Q2) What are the key objectives of India’s fiscal policy response to the pandemic of COVID-19?
Q3) What are the various schemes launched by the government for fiscal policy in response to
the pandemic of COVID-19?
 Need of Study
The COVID-19 pandemic has had a significant impact on the Indian economy, leading to a sharp decline
in economic activity and a rise in unemployment. The Indian government has responded to the crisis with
a series of fiscal measures, including direct cash transfers to households, tax breaks for businesses, and
increased spending on healthcare and infrastructure.

However, the effectiveness of these fiscal measures in mitigating the economic impact of the pandemic is
still unclear. There is a need to study the impact of COVID-19 on the fiscal policy of India in order to
understand the successes and failures of the government's response, and to identify areas for
improvement.

Specifically, a study on the following research objectives would be valuable:

 To study the impact of COVID-19 on the fiscal policy of India: This would involve examining the
changes in government spending and revenue, as well as the impact of these changes on the overall fiscal
deficit. It would also be important to study the distributional impact of the fiscal measures, i.e., how they
have affected different income groups and sectors of the economy.
 To study the objectives of India’s fiscal policy response to the pandemic of COVID-19: This would
involve understanding the government's goals in implementing the various fiscal measures, such as
preventing a sharp decline in economic activity, protecting jobs, and ensuring access to essential goods
and services. It would also be important to study how these objectives have been achieved, or not
achieved.
 To study the schemes launched by the government for fiscal policy in response to the pandemic: This
would involve examining the design and implementation of the various schemes, as well as their impact
on the economy and society. It would also be important to identify any lessons learned from the
implementation of these schemes, which could be used to improve future fiscal responses to crises.

A study on these research objectives would be valuable for a number of reasons. First, it would help to
improve our understanding of the impact of COVID-19 on the Indian economy and the effectiveness of
the government's fiscal response. Second, it would provide evidence that could be used to inform future
fiscal policy decisions. Third, it would help to identify the needs of different groups affected by the
pandemic, and to develop targeted policies to support them.

Overall, a study on the impact of COVID-19 on the fiscal policy of India would be a valuable
contribution to the understanding of the pandemic's economic impact and the effectiveness of government
responses. It would also provide evidence that could be used to inform future fiscal policy decisions and
to support those affected by the crisis.
RESEARCH OBJECTIVES
1) To study the impact of COVID-19 on the fiscal policy of India.
2) To study the objectives of India’s fiscal policy response to the pandemic of COVID-19.
3) To study the schemes launched by the government for fiscal policy in response to the
pandemic.

LITERATURE REVIEW

1) Jose, J., Mishra, P., & Pathak, R. (2021). This article discusses India's economic and
budgetary implications from the first wave of the Sars-CoV-2 epidemic. It also discusses
monetary and fiscal measures and pandemic response issues. It highlights national and
subnational pandemic responses using official data and journalism. The pandemic-stricken
greatest democracy's policy reaction is examined in the article. It shows institutional and
resource restrictions that shaped policy. India's viral response may help other poor nations.
Hence, national and subnational governments have avoided excessive debt and focused on
liquidity-enhancing measures and budgetary measures for the most vulnerable.

2) Narayan, P. K. (2021). This study reviews COVID-19 literature. Energy, COVID-19, and
stock market performance are most investigated. Because of high-frequency time-series data and
proper econometric methods. The report covers several policy-relevant socioeconomic and
financial topics. It highlighted particular and broad topics for immediate investigation. Future
research themes are policy-relevant.

3) Makin, A. J., & Layton, A. (2021). Governments worldwide actively used fiscal policy to
enhance health expenditure, income transfers, welfare payments, and wage subsidies to
enterprises to reduce short-term unemployment in response to the COVID19 pandemic. A
budgetary reaction was essential and timely, but governments' actions varied globally. This
article objectively assesses the worldwide fiscal reaction using comparable historical events after
detailing the CVC's global macroeconomic impact and its effects on budget deficits and
governmental debt. According to the research, certain budgetary reactions were excessively large
and inappropriate. The article then discusses the future macroeconomic implications from the
CVC's high public debt levels and concludes that fiscal consolidation, not fiscal "stimulus," is
needed to fix the crisis's fiscal mess.

4) Padhan, R., & Prabheesh, K. P. (2021). This paper examines the consequences of the COVID-
19 epidemic and recommends policy solutions by reviewing the economics literature. Our survey
shows that the COVID-19 epidemic has had economic impacts as well as mortality. The poll also
suggests national and international collaboration. This paper recommends coordinating
monetary, macroprudential, and fiscal policy (trio) to offset COVID-19's negative economic
consequences. Lastly, this study suggests additional investigation.

5) Sharma, G. D., Talan, G., & Jain, M. (2020). The COVID-19 epidemic has devastated
economies and lost lives. Due to sluggish development, weak health infrastructure, and a large
population living in extreme poverty, this situation is considerably worse in rising economies
like India. To control the economic impact of the COVID-19 epidemic on India, policymakers
must understand its extent. This article uses a qualitative research approach based on sentiment
analysis to analyze 15 industry professionals' opinions on COVID-19's socio-economic impact
on India. The research advances theory and practise. It adds to pandemic research, public health
management, and disaster management conceptually, but we recommend a set of solutions for
policymakers in India and other growing nations.

6)Faria-e-Castro, M. (2021)The recipients of the various financial assistance programmes

implemented in response to the COVID-19 pandemic varied. We examine variations in the
inflationary consequences of fiscal support programmes aimed at consumers or enterprises using
variation across 10 big economies. We use data on household sentiment to adjust for the real
economy's underlying situation because traditional measures of real activity were distorted. We
discover that fiscal support programmes for consumers, but not for enterprises, had inflationary
effects that were apparent five weeks after the announcement and peaked at 12 weeks. In a
climate of rising consumer sentiment, the effect's size was greater.

7)Chugunov, I., Pasichnyi, M., Koroviy, V., Kaneva, T., & Nikitishin, A. (2021)Coordination of
monetary and fiscal policies ought to be centred on sustaining long-term macroeconomic
stability and enhancing public welfare. In order to ensure sustainable economic development,
this article tries to strengthen the theoretical and methodological foundations of the formulation
of fiscal and monetary policies and identify the key areas for strengthening their coordination. To
analyse the fiscal-monetary combination, we created an institutional methodology.

8)Chen, C., Shi, Y., Zhang, P., & Ding, C. (2021).Global governments have reacted in a number
of ways to the COVID-19 outbreak. The economic, political, and institutional conditions in
which national governments have implemented fiscal strategies to address the COVID-19
epidemic are examined in this study. The three aspects of fiscal policy responses to COVID-19
(the magnitude of fiscal spending, the forms, and aims of fiscal policy responses) are compared
and contrasted across 170 nations.

9)Padhan, R., & Prabheesh, K. P. (2021)This paper investigates the effects of the coronavirus
(COVID-19) pandemic and suggests alternative policy paths to lessen those effects through a
review of the literature on the economics of the pandemic. Our survey demonstrates that, in
addition to mortality, the COVID-19 epidemic has had negative economic repercussions. The
poll also shows that there has to be more collaboration at the national and international levels.
The conclusion of this study makes recommendations for the coordination of monetary,
macroprudential, and fiscal policy (the "trio") to lessen the negative economic consequences of
COVID-19. Finally, this paper examines potential research directions.

10)Di Pietro, M., Marattin, L., & Minetti, R. (2020)Globally speaking, the COVID-19 crisis has
prompted the largest and swiftest fiscal policy response in times of peace. Direct budgetary
support for private earnings and employment has been prioritised by governments, limiting
economic damage and laying the groundwork for a strong recovery. As a result of disparities in
automatic stabilisers, pre-pandemic fiscal space, the severity of infections, and policy
preferences, the size and character of the fiscal reaction have differed among nations. After the
pandemic has passed, fiscal policy is likely to continue to be supportive for a while, with an
increased emphasis on expanding investment in many nations.

RESEARCH METHODOLOGY
Because the study is descriptive in nature, it will go via the gathering and analysis of theoretical
data. Descriptive research covers numerous types of fact-finding inquiries as well as descriptions
of the current situation. The research method adopted in the present study is through adequate
secondary sources of information. The secondary sources of information have been gathered
from the following : (A) Books, articles, newspapers. (B) The secondary data about the fiscal
policy in India.

DISCUSSION

In contrast to previous crises events, the EMEs relaxed their monetary and fiscal policies in
reaction to the Covid-19 shock. Furthermore, a number of central bank measures, most notably
the acquisition of government bonds, had a distinct fiscal component. (Pathak 2021)

India's fiscal policy has been significantly impacted by the COVID-19 outbreak. The Indian
government has taken a number of actions to lessen the pandemic's economic effects and help
those impacted by it, both personally and professionally. The following are some significant
ways that COVID-19 has impacted India's fiscal policy:
1. Increased government spending: The Indian government has considerably boosted
expenditures to maintain the economy and help individuals afflicted by the outbreak. The
government has launched a number of assistance programmes, including free food assistance,
subsidised business loans, and direct cash transfers.
2. Revenue losses: A severe drop in economic activity brought on by the pandemic has resulted
in fewer tax receipts for the government. In order to meet its expenditure commitments, this put a
lot of stress on the government's budget and compelled it to increase its borrowing.
3. Fiscal deficit: India's fiscal deficit has grown dramatically as a result of more spending and
decreased earnings. (Layton 2021)
The government was forced to raise its fiscal deficit target for 2020–21 from 3.5% of GDP to
9.5% of GDP. 4. Monetary policy: In addition, the Reserve Bank of India (RBI) has taken a
number of actions to help the economy, such as lowering interest rates, giving banks liquidity
support, and easing loan repayment requirements for both firms and people. 5. Structural
reforms: The government has also used the pandemic as a chance to implement structural
reforms in various areas, including agriculture, labor laws, and business regulations. Long-term
economic growth is the goal of these policies. The COVID-19 pandemic has, in general, had a
considerable influence on India's fiscal policy, resulting in more spending, decreased income,
and a growing fiscal imbalance. To help the economy and lessen the effects of the epidemic, the
government and RBI have taken a number of actions. The fiscal policy response to COVID-19 in
India has aimed to mitigate the economic impact of the pandemic on households and businesses,
maintain financial stability, and support the recovery of the economy. Some of the key objectives
of India's fiscal policy response to COVID-19 include:
1. Providing relief to vulnerable households: To help low-income households and migrant
workers who have been negatively impacted by the pandemic, the government has provided cash
transfers and other types of aid. .(Narayan 2021)
2. Supporting small businesses: To assist small and medium-sized businesses, the government
has introduced a number of policies, including interest rate reductions, loan moratoria, and credit
guarantees (SMEs).
3. Stimulating demand: To boost demand and encourage economic development, the government
has implemented policies including tax cuts, more public expenditure, and infrastructure
investment.
4. Strengthening the health infrastructure: To combat the pandemic and strengthen the healthcare
system in the long run, the government has boosted investment on health infrastructure.
5. Maintaining financial stability: To preserve financial stability throughout the pandemic, the
government has put in place measures such as providing banks and other financial institutions
with liquidity support.
6. Promoting structural reforms: To increase the economy's productivity and efficiency, the
government has announced a number of structural reforms, including changes to the labour
market, privatisation of state-owned businesses, and agricultural reforms. .(Narayan 2021)

Overall, India's fiscal policy approach to COVID-19 aims to promote long-term sustainable
growth and development while also reducing the pandemic's immediate economic effect. The
objective of India's fiscal policy reaction to the COVID-19 pandemic was to mitigate the
pandemic's economic impact and provide aid to the most disadvantaged people in society. The
following are some key aspects of the fiscal policy response:
1. Atmanirbhar Bharat Package: To stimulate the economy, the Indian government proposed a
stimulus package worth Rs. 20 lakh crore (almost 10% of the nation's GDP) in May 2020. The
package includes policies including collateral-free loans for MSMEs, liquidity support for
NBFCs and housing finance businesses, free meals for migratory workers, and assistance for the
agricultural industry. .(Prabheesh 2021)
2. Garib Kalyan Rojgar Abhiyaan: To provide migrant workers who returned to their home states
during the pandemic job options, the government introduced this programme in June 2020. The
programme seeks to give 125 days of work opportunities in 116 districts throughout 6 states.
3. Pradhan Mantri Garib Kalyan Yojana: The goal of this programme, which was introduced in
March 2020, is to help the weak and disadvantaged members of society. The programme offers
benefits including free food grains, cash transfers to farmers, older persons, and women, as well
as insurance coverage for healthcare professionals. (Kaneva 2021)
4. Aatmanirbhar Bharat Rozgar Yojana: The government introduced this programme to
encourage the development of jobs in the formal sector in November 2020. For two years
following a new hire's start date, the government will pay the employee and employer
contributions to the Employee Provident Fund (EPF).
5. Production Linked Incentive (PLI) Scheme: In order to increase local production across a
number of industries, including medicines, electronics, and autos, the government unveiled this
programme in November 2020. The programme intends to give firms incentives to boost output
and generate job opportunities. (Jain 2020)
The overall focus of India's fiscal policy response to the COVID-19 pandemic has been on
giving aid to the impoverished and most vulnerable members of society, increasing employment
opportunities, and strengthening local manufacturing. Nonetheless, some analysts have criticised
the government's reaction for lacking sufficient assistance for the informal sector and small
enterprises(Castro 2021).

CONCLUSION
This article examined the relationship between military spending persistence and the magnitude of fiscal
stimulus packages using a large time-varying cross-country panel dataset of fiscal policy responses to the
Covid-19 epidemic.
After establishing the persistence of military spending in the first stage, we employed estimated
persistency values in a panel model together with other control variables to look at the impact of
persistency on fiscal policy. The findings show that nations with more enduring military investment had
undertaken smaller fiscal-stimulus packages during the Covid-19 epidemic based on various
militarization factors and approaches. This discovery is crucial for the battle against the pandemic as well
as other catastrophic external shocks.(Prabhessh 2021)

The Covid-19 outbreak has had a substantial influence on the Indian economy, including supply
chain disruptions, decreased consumer demand, and employment losses. In response to the crisis,
the Indian government has enacted a number of fiscal policy measures to strengthen the economy
and mitigate its effects on companies and individuals. The announcement of a Rs. 20 lakh crore
($266 billion) economic package, equivalent to around 10% of India's GDP, was one of the
important initiatives. Among other measures, the package includes loan guarantees for MSMEs,
liquidity support for non-bank financial institutions, and direct cash transfers to farmers. The
Reserve Bank of India (RBI) has also adopted a number of measures, including interest rate
reduction, liquidity injections, and regulatory forbearance, to boost the economy and preserve
financial stability. In spite of these steps, the Indian economy contracted by 7.7% in 2020-21, as
measured by the gross domestic product. According to the Reserve Bank of India, the economy
has begun to rebound, with the GDP expanding by 1.6% in the fourth quarter of 2020-21 and by
9.5% in 2021-22. In conclusion, the Indian government's fiscal policy reaction to the Covid-19
outbreak has been substantial, with measures designed to assist enterprises, people, and the
economy as a whole. Although the epidemic has had a severe impact on the Indian economy, the
government's actions are likely to help to a gradual recovery. (Jain 2020)

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