Page 71 - economic_survey_2021-2022

Fiscal Developments 45

FISCAL POLICY STRATEGY IN THE AFTERMATH OF THE
PANDEMIC OUTBREAK

2.3 The agile fiscal policy response adopted by Government of India encompassed a change
in mix of the stimulus measures amidst an uncertain evolution of the pandemic situation. In the
initial phase of the pandemic, the fiscal policy focused on building safety-nets for the poor and
vulnerable sections of society to hedge against the worst-case outcomes. Stimulus measures such
as direct benefit transfers to the vulnerable sections, emergency credit to the small businesses,
and the world’s largest food subsidy programme targeting 80.96 crore beneficiaries enabled
the creation of safety-nets, by ensuring that the essentials are taken care of. This was followed
by a series of stimulus packages spread throughout the year 2020-21, driven by a Bayesian
updating of information as the situation evolved. With the restoration of economic activities, the
fiscal response focused on stimulating demand in the economy. During this phase of economic
recovery, the stimulus mix included investment boosting measures like Production Linked
Incentives (PLI), steps to encourage investment in infrastructure sector and enhancing capital
expenditure by the Central and state Governments (Figure 2 A to 2 D).

2.4 This enhanced focus on capital expenditure in the second half of the year 2020-21 is reflective
of the responsive fiscal policy which Government of India has adopted against COVID-19. Due
to movement restrictions in containment zones, and unwillingness or inability of contractors and
workers to carry out works, the quarterly capital expenditure was restrained during the first two
quarters of 2020-21. With the easing of movement and health-related restrictions in Q3 of 2020-21,
the capital spending was pushed for encouraging expenditure in sectors with the most positive effect
on the economy. The focus on capital spending has been sustained during the current fiscal, as the
capital expenditure shows an increasing trend during the first three quarters of 2021-22 (Figure 1).

Figure 1: Trends in quarterly capital expenditure

160 Post first wave Sustained capital
ramp-up spending
140 Lockdown
₹ Thousand crore 120

100

80

60
40
Q1-FY2019 Q2-FY2019 Q3-FY2019 Q4-FY2019 Q1-FY2020 Q2-FY2020 Q3-FY2020 Q4-FY2020 Q1-FY2021 Q2-FY2021 Q3-FY2021 Q4-FY2021 Q1-FY2022 Q2-FY2022 Q3-FY2022 (Est)

Source: CGA Monthly Accounts
Note: The estimate for Q3 FY2021-22 uses flash figures for Dec 2021.