INTRODUCTION -Context And Background

In their report titled “Correcting Course,” the World Bank outlines the ways in which the COVID-19 pandemic has contributed to global poverty. As a result of poor economic management, 5.6 crore people in India were forced into the lowest tier of poverty in the year 2020.

The World Bank report on the fiscal policy of developing countries places an emphasis on the use of fiscal policy by governments as a tool to combat pandemics. Richer countries were able to use their fiscal policy to reduce the impact of the pandemic, while poorer countries were unable to do so.

Concerns: What are the root causes?

• The gap between rich and poor is widening: despite the fact that the World Inequality Report describes India as “poor and very unequal,” inequality is growing.

• The Goods and Services Tax (GST) is a regressive tax. India has repeatedly increased GST rates on a wide variety of products as well as fuel prices. Indirect taxes are beneficial to the public finances but are regressive to the poor.

• In 2022, India’s economy is still struggling, so it is important to review the policy decisions that were made in 2020.

• A decrease in GDP and an increase in poverty: India’s GDP dropped by 7.5% in FY2020-21, which caused 5.6 crore people to fall into poverty.

• Ten percent of the population in India was living in poverty in the year 2020.

• Marginal expenditure: Refusal to provide a fiscal stimulus to consumption A fiscal stimulus package worth Rs. 2 lakh crore, or 1% of GDP, was announced by the government. A negligible proportion was comprised of additional spending.

Inadequate MGNREGA wage increase: The long-overdue increase of Rs.20 per day to the (MGNREGA) wage was insufficient.

• Households did not receive any financial assistance because the majority of India’s economic stimulus package consisted of credit lines and refinancing schemes for private businesses. These are ineffective methods for increasing household consumption.

Implications

COVID-19 Impact?

• A dramatic increase in the number of people living in extreme poverty: the global poverty rate increased by seven crores million between 2019 and 2020, going from 8.4% to 9.3%.

• For the first time in the past 20 years, the number of people living in poverty has increased. Because of the uneven nature of the economic recovery, there has been an increase in global inequality, which can be seen in the relative effects on incomes in the richest and poorest countries.

Initiatives taken- “Structural & Functional Initiatives Taken”

• The Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) distributes food assistance to 80 million people in India who are experiencing difficulties in their households. The price tag for PMGKAY is approximately Rs. 3.90 lakh crore. Since April of 2020, it has been extended all the way up until the elections for the Assembly.

• Tax Breaks for Corporations: India has kept its corporate tax cut that was implemented in September 2019 despite the pandemic. The reduction in the corporate tax rate from 30% to 22% incurred a cost of Rs. 1.84 lakh crore over the course of the previous two financial years, as reported by the Parliamentary Committee on Estimates.

• India has not brought back taxes on wealth or inheritance, which contributes to an increase in corporate profits. According to the CMIE, corporate profits have been on the rise.

INNOVATION “the way ahead”

• India’s fiscally conservative policies have made the country rich, but the people living there are poor. We cannot view India’s history in a vacuum. Despite positive budgetary moves, the United States of America and the United Kingdom are both heading toward recession. India has maintained positive growth despite its slow pace, but this growth must include the country’s poor.

• World Bank Recovery priorities with a focus on the aftermath of pandemics; the World Bank recommends three fiscal policy priorities for governments to consider in order to assist in the recovery from the aftermath of pandemics:

1. The focus of subsidies was on the poor.

2. continued public investment over the long term in resiliency.

3. The generation of revenue through the use of progressive direct taxation rather than indirect taxation.