The Advisory Council to the 15th Finance Commission in its meeting on April 23-24, felt that the impact of COVID-19 lockdown on Indian economy will lead to a slowdown in domestic activity, its impact on cash flows of financial institutions and business enterprises.
Members were unanimous to suggest that projections of real GDP growth made before March 2020 need to be relooked entirely.
The Advisory Council further felt that once the lockdown of the economy is released, the recovery can only be expected to be gradual, depending on the ability of the workforce to get back to work soon, restoration of supplies of intermediates and cash flows and the demand for output.The Advisory Council also felt that the magnitude of the impact of these developments on public finances is uncertain, but will certainly be significant.
Governments will have substantial expenditure burden on account of health, support to poor and other economic agents. The Council Members felt that the shortfall in tax and other revenues will be largely due to subdued economic activity.
Hence, fiscal response to the crisis should be much more nuanced. It is important not just to look at the size of fiscal response but also carefully at its design. The Council apprised the Finance Commission of the different suggestions floating around in terms of public expenditure support to the economy.
The meeting was chaired by NK Singh, Chairman of the 15th Finance Commission and was attended by all members and senior officials of the Commission. From the Advisory Council, Dr Sajjid Z Chinoy, Dr Prachi Mishra, Neelkanth Mishra and Dr Omkar Goswami joined the meeting on April 23 and Dr Arvind Virmani, Dr Indira Rajaraman, Dr DK Srivastava, Dr M Govinda Rao, Dr Sudipto Mundle and Dr Krishnamurthy Subramanian joined the meeting on April 24.