FISCAL STIMULUS: Meaning and How does it work?
- A Stimulus package provides tax rebates and boosts spending.
- Fiscal Stimulus is used by the government to stimulate the economy and prevent the country from a financial crisis.
- The stimulus package in a long run supports the economy from the roots by increasing the spending of people and creating jobs.
A fiscal stimulus is a package comprising tax rebates and incentives. It's used by the government to stimulate the economy and prevent the country from falling apart by a financial crisis.
A stimulus package provides tax rebates and boosts spending for the people. As the spending of an individual increases demands increase, this creates a situation where employment rises. This, in turn, leads to rise in income, which proportionately boosts spending in the country. As this continues, the economy recovers rather than collapsing. In 2008, when Global Financial Crisis triggered, the United States had provided a fiscal stimulus that aimed at boosting the economy by increasing the employment rate. In 2008, India too used the country's first stimulus package to ensure the safety of bank deposits and stability of the financial system.
In recent memory, in February, US PRESIDENT Joe Biden proposed a $1.9 trillion stimulus package, to help the economy to recover from the after affects the Coronavirus Pandemic. The Proposed package includes more aid to the jobless and poor portion of the economy, PLUS additional support for the small businesses, states, and local governments and increased funding for COVID-19 vaccinations and testing.
Also Read : TTIN FINANCIAL JOURNAL - Why rupee may rise despite weak GDP point
How does a stimulus package work?
A financial crisis can begin in many ways, a pandemic like COVID-19 being one of those. No matter how it starts, the only way to overcome a crisis is by infusing a lot of money into the economy. A fiscal stimulus is one of the medicines in the prescription to save an economy and it's one of the ways to infusing money into an economy that's going through a crisis. The government hands over the money via, direct subsidies, loans, or tax incentives to individuals, companies, and entire industries to take them out of the crisis.
Among the most common fiscal stimulus are industry bailouts. During the 2008 recession, the Indian government infused liquidity into the banking system. The Reserve Bank of India (RBI) reduced the CRR and Repo Rate and Reverse Repo Rates. These measures were taken to stimulate the Indian Economy.
The second form of stimulus is tax incentives and rebates. Cutting certain taxes or providing rebates is a common component of stimulus packages. The aim of tax incentives is to leave more money in the hands of businesses and individuals. The government hopes that individuals and businesses will later spend more money, thereby, boosting more economic activity.
Last year Government used three Stimulus packages
- On March 26, 2020, India announced its first economic stimulus packages worth Rs.20.97 Lakh crore to help millions of low-income households cope with the Coronavirus lockdown. By providing them subsidies and free food supplies to citizens below the poverty line.
- On October 12, 2020, The finance Ministry introduced a second set of measures to spur consumer spending and bolster demand in the Coronavuris hit economy and announced a package of Rs.73,000 Crore. In the quarter ending June 2020, the Indian economy was the worst-performing major economy, contracting at 23.9 percent amid the stringent lockdown. A few years ago, the International Monetary Fund has singled out the Indian Economy as a global bright.
- On November 12, 2020, the government of India announced a third economic package of Rs. 2.65 Lakh Crore to stimulate the economy by creating jobs leading to the boost in consumer demand, manufacturing, agriculture, and exports hit by the pandemic.
This was informative
ReplyDeleteHence the fall of United States of America. There comes the recession.
ReplyDelete