Desperate economic situation calls for immediate boost to government expenditure -Prabhat Patnaik

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published Published on Sep 18, 2020   modified Modified on Sep 22, 2020

-National Herald

Universal cash transfer to non-income tax households is imperative apart from covering investment on infrastructure, including social infrastructure like healthcare

A striking aspect of the 24 per cent decline in GDP in the first quarter of 2020-21 compared to the previous year’s first quarter is the decline by 10.3 per cent in public administration, defence and other public services. This is a sector where the GDP is estimated not by the “output” of the sector but by the government expenditure incurred under these heads. The decline in the GDP originating in this sector therefore means a decline in public expenditure.

This is surprising for two reasons: first, it shows that government expenditure, instead of being “counter-contractionary” has been “pro-contractionary”; second, during the lockdown caused by the pandemic one would expect government spending on healthcare to go up, and thereby raise the overall government expenditure, instead of the fall we actually observe.

When there is a lockdown, and output contracts, it is incumbent on the government to increase its expenditure. The rise in expenditure reduces the degree of contraction; and it puts purchasing power in the hands of people, so that many of them can maintain their consumption without getting into debt. Even if the government is timid enough not to increase its expenditure, at least it must maintain its expenditure to limit the contraction in GDP; but a fall in government expenditure during the period of a lockdown, which accentuates the overall contraction, is just the opposite of what the government should have done.

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National Herald, 18 September, 2020, https://www.nationalheraldindia.com/india/desperate-economic-situation-needs-immediate-boost-to-government-expenditure?fbclid=IwAR0vvBkDuOuRCoyPaqg2QGVnzmcLVwsyGh2PegtDQMDOFVnLL8KLdLKQNYA


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