What is a stimulus package and how will it help to save Indian economy from slowdown: 5 points to know

If you are still confused about how stimulus package will help in reviving economy growth, then let us explain in these 5 points.

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What is a stimulus package and how will it help to save Indian economy from slowdown: 5 points to know

The government, in its damage control mode is now mulling over a plan to change its fiscal deficit target, in order to spend up to Rs 50,000 crore ($7.7 billion) to save the economy form a slowdown, Reuters reported citing two government sources.

But if you are still confused about how that will help in reviving growth, then let us explain in these following points: 

To begin with, let's talk about, What is a stimulus package? 

To revive the otherwise slow economy of the nation, the government prepares a stimulus package with a number of corrective measures by boosting employment and spending.

Why the Modi government needs a stimulus package? 

Growth in Asia's third-largest economy slowed to a three-year low of 5.7% in the June quarter, and Finance Minister Arun Jaitley said on Thursday that the government was looking for ways to rejuvenate it.

A Reuters report naming two government sources said that the measures have not been made public yet, and the extra spending was estimated to widen the federal fiscal deficit for the current financial year to 3.7% of GDP. 

However, the target in the budget was of 3.2%. 

"The fiscal deficit is not a sacrosanct number," one of the officials told Reuters.

What is the reason behind slowdown?

The official further told that the economy was passing through a "transitory phase" after the government's demonetization move in November, 2016. 

Experts said that the PM's decision hurt consumer demand in an economy where most people were paid and spent in cash.

Furthermore, the rolling out of the Goods and Services Tax Bill also disrupted the economy-which was already going through a struggling phase, analysts said. 

In what way the stimulus package will help? 

With the economy still reeling from the cash clampdown, the faulty implementation of the GST then made doing business far more complicated for many companies.

FM Arun Jaitley has held a series of meetings with cabinet colleagues and other government officials this week to explore ways to revive the economy.

"The government could ask Parliament to give its approval to defer the fiscal consolidation path this year," the second government official told Reuters.

With the extra money, the Centre is looking to spend more on bank recapitalisations, rural jobs programme and rural housing.

However, Prime Minister Narendra Modi will give his nod to finalise the hike in the funding and breaching the fiscal deficit target. 

What one could expect from the government?

The government might announce the sops to address exporters' concern, could allow more capital to banks, there is buzz that the government might give more funds to the Indian railways. 


(With inputs from Reuters)


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