The IMF has revealed That the Indian Economy’s Regional GDP is Slipping Lower Than Bangladesh.
If the forecast of IMF turns out to be true, India will be the worst affected economy in the South Asia. However, Finance Minister Nirmala Sitharaman’s Rs. 73,000 crore package looks bright.
After the Goldman Sachs warning and the World Bank report, there is another predicament for the Indian economy, this time from the International Monetary Fund (IMF). According to the IMF’s latest World Economic Outlook report, Indian economy’s per capita gross domestic product (GDP) for the calendar year 2020 will fall below the per capital GDP of Bangladesh.
India’s per capita GDP for the year 2020, will fall below the per capital GDP of Bangladesh.
The per capita GDP of India has fallen down to $1,877 in 2020 due to the lockdown measures against covid-19. This is a decline of 10.3% from last year’s figures. However, Bangladesh’s per capita GDP witnessed a rise of 4% growing to $1,888. This rapid increase for Bangladesh comes primarily from a boost in exports.
However, this is a forecast by the IMF and there are still three months before the actual figure takes shape. If the forecast turns out to be true, then India will become the worst affected South Asian economy due to coronavirus with regional GDP higher than only two countries, Pakistan and Nepal. Countries like Bhutan, Maldives, Sri Lanka, and Bangladesh will overtake the Indian economy in terms of regional GDP if the figures take shape by the end of December.
After Spain and Italy, India is the third country with the largest contraction at 10.3% which is the biggest among all the developing economies. However, the IMF reports also forecast a quick recovery in 2021 restoring the Indian economy’s position in terms of regional GDP, ahead of other South Asian countries, including Bangladesh.
After Spain and Italy, India is the third country with the largest contraction.
Economies throughout the world are facing serious setbacks due to the coronavirus outbreak, and India is no exception. However, the finance ministry is coming forth with new packages and plans, trying their best to revive the economy. On 12th October, finance minister Ms. Nirmala Sitharaman introduced a new scheme worth Rs. 73,000 crore to boost demand in the Indian economy.
What is the Rs. 73,000 crore scheme?
On Monday, Finance Minister Nirmala Sitharaman announced a plan to revive the Indian economy during the pandemic. This plan is actually a set of two measures which include first, to boost demand and second, to increase the capital spending by the states and center. The measure is projected to create an additional demand of Rs. 1 lakh crore in the economy.
The Finance Ministry has introduced 2 schemes under the first measure, a LTC Cash Voucher Scheme and a Special Festival Advance Scheme. These two schemes are expected to infuse demand of Rs. 28,000 crore and Rs. 8,000 crore in the economy, respectively. LTC benefits for Central Government employees remain unavailable due to the covid-19 pandemic. Under LTC, the central government employees are either entitled to a tax free payment of fare in three flat-rate slabs as per class of entitlement or full payment for leave encashment for 10 days. The LTC Cash Voucher Scheme will give employees an option to buy goods/services amounting to three times the fare and one time the leave encashment. The condition being, that the purchases made should be attracting 12% GST or more. These purchases are to be made from GST registered vendors and before 31st March, 2021.
Watch: FM Sitharaman announces schemes to boost the economy
In simpler terms, the government is luring central government employees to make heavy purchases, the maximum part of which will be paid by the LTC funds that are lying unused due to the coronavirus pandemic. This will further create private sector spending through LTC tax benefit which is likely to create a total demand of Rs. 28,000 crore in the economy.
Another scheme under the demand boost measure is the Special Festival Advance Scheme which allows the Central government employees to take interest free loans from the government up to 10,000. This loan doesn’t charge any interest and can be repaid in maximum 10 instalments. This amount will be given to the employees in the form of pre-loaded Rupay card and is expected to generate demand of Rs. 8,000 crore by boosting digital payment and tax revenues.
FM Sitharaman’s plan is a set of two measures – boosting demand and increasing capital spending.
To boost the capital expenditure (which has a massive multiplier impact), Rs. 120000 crore worth interest-free loan will be provided to the states for the duration of fifty years. The condition is that the money is to be used only for capital spending. Again, the entire amount should be spent by 31st March 2021.