Impact of Covid-19 on the Indian Economy

An Analysis of Fiscal Scenarios

Abstract

Issue: Sep-Oct 2020

Amidst the economic slowdown triggered by the outbreak of the COVID-19 pandemic in India there have been many demands for the government to announce a large fiscal stimulus to support the economy. Economic growth and tax revenues remain uncertain in 2020-21 making it challenging for the government to finance any addition to the fiscal deficit. In this paper we work out alternative scenarios of fiscal deficit for 2020-21. We find that in our baseline scenario, assuming a 5% contraction in real GDP and a 14.4% contraction in net tax revenue, fiscal deficit of the central government will be 6.2% of GDP. JEL: E6, H2, H5, H6