Need for Fiscal Stimulus
The government remains open to declaring new stimulus measures to provide relief to the stressed sectors, says Chief Economic Advisor KV Subramanian.
His response has come in the wake of the output loss that the nation bore under the COVID-19 impact. The Reserve Bank has estimated these losses to the tune of Rs 2 lakh crore. Several industrial bodies have demanded relief measures from the government to mitigate these losses.
The stressed sector will require continuous monitoring and assistance from the government as well as the RBI in order to survive. Several schemes are already announced to support the stressed sectors.
Infra spending was a big focus area budget of FY22, while RBI has also eased the liquidity position considerably through its ECLG schemes to benefit the stressed sectors. More measures, as and when announced, would need to be in line with these schemes to make it a collaborative effort.
Losing Sleep Over Inflation
After staying below 2% for a long time, inflation is rearing its head again in the US market. The CPI rose at 5% in May, up from 4.2% in April and the highest since August 2008.
Inflation has been rising steadily since January, which could push the Federal Reserve to tighten its monetary policy earlier than expected. It is adding to the anxiety of investors.
The Federal Reserve has already announced to take rate hikes in 2023, pushing forward its rate hike program by a year, signalling its growing concerns regarding inflation.
The rising inflation in the US could cause great discomfort for emerging markets like India as it could impact the flow of foreign funds in our market. If the Federal Reserve is forced to hike rates, it would dry down the liquidity tap for emerging markets, pushing them towards forceful correction.
China's Lightning Fast Vaccination Drive
China has claimed to have administered over 100 crore doses of COVID-19 vaccines in the country by June 19. China is aiming to vaccinate 70% of the target population by the end of the year 2021.
So far, China has approved 21 COVID-19 vaccines for clinical trials. And four vaccines have received conditional approval for emergency use.
On similar lines with China, even India has set an ambitious target of vaccinating its entire population by the end of the year. However, our vaccination program has remained slow with ~27 crore doses administered in the country so far.
India would need to ramp up its infrastructure to produce more vaccines as well as deploy a higher number of medical staff to get anywhere close to that target. An estimate also suggests that it would require additional spending of Rs 15,000 crore over and above Rs 35,000 crore allotted in the budget.