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India needs 3% of GDP - not 5% - for coronavirus stimulus: Rangarajan

India needs 3% of GDP - not 5% - for coronavirus stimulus: Rangarajan

Cost of government 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 Rs 6 lakh crore

Former RBI Governor C Rangarajan Former RBI Governor C Rangarajan

Contrary to a growing view that given India's size, the government will need to allot 5 per cent of GDP (gross domestic product) to tide over the economic fallout of coronavirus, Dr C Rangarajan, the veteran economist and former governor of the Reserve Bank of India, says his estimates suggest a figure of 3 per cent of GDP, or Rs 6 lakh crore. "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."

Rangarajan says government's expenditure to fight coronavirus crisis will largely fall 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."

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The other set of expenditures, he says, that are to be incurred by the government "are 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."

And, the third set of expenditures, he says, "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."

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Dr Rangarajan says the total expenditure the government needs to incur has to be viewed from the point of not just the additional expenditures under the current extraordinary circumstances but also the expenditures indicated 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 per cent, therefore nominal income will grow by 10 per cent. But the expectation now is that perhaps the growth rate will now be between 2 and 3 per cent though the IMF estimate is 1.9 per cent growth rate for India."