The Key Strategy Is Fiscal Empowerment Of States

The Centre must recognise that winning the war on COVID-19 is linked to the States being armed with enough resources

- M. Govinda Rao

The scale of disruption caused by the COVID-19 pandemic has never been seen before. Even as we are in the midst of the second phase of the national lockdown, there is no clarity on the time it will take to come out of the crisis, the extent of damage it will inflict, and the cost of relief and rehabilitation required. At a time when governments, both at the Centre and in the States, are fiscally stressed, the pandemic has forced them to undertake huge expenditures to save lives, livelihoods and reduce distresses and even more, to create a stimulus to revive the economy as we map the exit strategy.

Need for relief

The speed of economic revival will depend on how long it will take to revive economic activities and the volume of stimulus through public spending the government is able to provide. It now appears that the lockdown will be lifted in stages and the recovery process will be prolonged. The country is literally placed in financing a war-like situation and the government will have to postpone the fiscal consolidation process for the present, loosen its purse strings and finance its deficits substantially through monetisation. This is also the time for the government to announce relaxation in the States’ fiscal deficit limit to make them effective participants in the struggle. It is also important for the States to realise the importance of health and prioritise spending on healthcare services.