A Fiscal Perspective on Policy Responses to COVID-19: Evidence from the Emerging Economy of India

The COVID-19 health crisis became a global economic crisis with mitigation measures leading to a steep decline in economic activity, disrupting demand and supply. To attenuate the economic impact of the pandemic, monetary and fiscal policies were used by governments, central banks and supranational institutions. This article analyzes the implications of fiscal and monetary policies used in India in response to the COVID-19 pandemic on the country's public debt. India's adoption of a unique calibrated expenditure strategy through fiscal stimulus provided a cushion to mounting expenditure requirements in a scenario of falling government revenue. Widening fiscal deficits due to the increased need for fiscal spending on the one hand, and a decline in revenue generation owing to fall in economic activities on the other, saw a surge in India's public debt. Coordinated efforts by monetary and fiscal authorities through conventional and non-conventional measures added new dimensions to India's debt management strategy. The unprecedented magnitude of the crisis pushed the Government of India to relax its debt and deficit indicators until the economy can move back to normalcy.