India’s Growth Prospects and Policy Options

Emerging from the Pandemic’s Shadow




Issue: Sep-Oct 2020

The story of the Indian economy as it unfolds under the impact of COVID-19 is disquieting. Had the economy been strong to start with, the situation would have been different. We have analysed the sharp decline in growth rate since 2011-12 and traced the causes for the slowdown to such factors as unsustainable expansion of credit followed by sharp increase in non-performing assets, and decline in savings and investment rates. We have also noted that centre’s gross tax revenues declined sharply on trend basis because of the fall in nominal GDP growth. This led to a squeezing of available fiscal policy space for the central government. Disruptions caused by such decisions as demonetisation also played an adverse role on both income and employment. The lockdown imposed to curb the spread of COVID-19 has put a brake on the economy. The need to kick start the economy and move it forward has become urgent. We have in this context discussed the roles of monetary and fiscal policies. Maintenance of government expenditure at a high level is unavoidable and monetisation of debt is also unavoidable. But policy makers must also be conscious of the fact that there is a limit to monetisation. Wisdom lies in striking the appropriate balance. JEL: E5, H2, H5, H6


COVID-19, GDP Growth, Government Borrowing, Tax Revenue, Debt Monetisation, Fiscal Policy

Authors Bio

C Rangarajan, Madras School of Economics

C. Rangarajan is Chairman, Madras School of Economics and Former Chairman of Prime Minister’s Economic Advisory Council and Former Governor, Reserve Bank of India.

D. K. Srivastava, EY India

D.K. Srivastava is Chief Policy Advisor, EY India and Former Director, Madras School of Economics