by Sukeerthi Vijayaraghavan

During the pandemic, western economies dealt mostly by handing out monetary assistance to support citizens. The view of experts was that India should take notes from the US and hand out money as a form of relief. However, the Indian government did not cave into these pressures. Instead, it chose to prioritize relief for those who needed it the most by providing in-kind relief packages to ensure food security. It also provided support through subsidised or interest-free loans to overcome the temporary liquidity issues of state governments and for capital formation. This article aims to compare the western model of fiscal support, specifically taking the case study of the U.S, with India’s response to the Covid-19 pandemic.

Introduction

Economically speaking, it seems as though the US has not caught a break. First, an economic collapse due to the unprecedented Covid-19 pandemic, the effects of the Russo-Ukrainian war and then a 40-year high inflation rate that’s yet to be tamed. However, there is a country that has fared relatively well in comparison. India has managed to keep itself afloat post the Covid-19 pandemic as well as during the Russo-Ukrainian war. Despite experiencing similar setbacks, both countries have faced different outcomes post the pandemic. To understand why that is the case, one needs to go back and understand the measures the respective governments took to curb the pandemic.

Western economies and relief policies

The Covid-19 pandemic was the first domino in the deck to send the US economy into a seemingly never-ending spiral. Many businesses laid off employees or shut down. Hence, the goal of the Federal Reserve (Fed) at the time was to increase employment and protect the livelihood of individuals. The following table shows the fiscal stimulus packages used by the government:

Table 1. Summary of US Fiscal Measures in Response to the COVID-19 Pandemic since January 2020

Country: US	Foregone revenues	Accelerated Spending/   Deferred revenues	Liquidity Support
Health	Non-Health	Sub Total	Equity, loans, asset purchase	Contingent Liabilities	Sub Total
Guarantees	Quasi Fiscal
Spend	687	4,641	5,328	18	56	454		510
% of GDP	3.30%	22.2%	25.50%	0.10%	0.30%	2.20%		2.5%

Values in USD bn

Source: https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19

The fiscal stimulus package has been split into foregone revenues, accelerated spending and liquidity support. The focus of the analysis will be the spending on non-health purposes (mainly to support livelihood) under the foregone revenue category.

The total amount spent in US dollars on non-health purposes is $4,641 bn which is about 22.2% of the US’ GDP.

Summary of spend under non-health (foregone revenue category)

Country	Package	LC bn	USD bn	Type
US Non Health fiscal support	Coronavirus preparedness and response supplemental appropriation	1.2		Direct Cash
Family First Coronavirus Response Act	39		Direct Cash
Unemployment insurance	437
Emergency appropriations	350		Direct Cash
Small business loan waiver	349		Direct Cash
Miscellaneous Emergency spend	376		Direct Cash
Paycheck protection program – small business Administration’s loans	62		Direct Cash
Pay check protection program small business Assistance	187		Direct Cash
Extra unemployment benefits	44		Direct Cash
Consolidated Appropriation Act – Support for household	329		Direct Cash
Consolidated Appropriation Act – Support for businesses	347		Direct Cash
Consolidated Appropriation Act – Support for Education and childcare	92		Direct Cash
Consolidated Appropriation Act – Miscellaneous	1.90		Direct Cash
American Rescue Plan – Support to household	794		Direct Cash
American Rescue Plan – Support to businesses	86		Direct Cash
American Rescue Plan – Support to state ,local and triable  governments	362		Direct Cash
American Rescue Plan – Support for education	171		Direct Cash
American Rescue Plan – Support for Childcare, and transport, federal emergency management authority, international response	39		Direct Cash
American Rescue Plan – Miscellaneous	193		Direct Cash
Miscellaneous	380.0
Total	4,641.0

Source: https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19

When the rate of injection of money into an economy is higher than the growth of its economic output inflation begins to increase. The injection of large sums of money into the economy was the misstep that created the domino effect we see today in the form of a 40-year high, uncontrollable inflation rate.

India’s unconventional response.

The Covid-19 pandemic did not spare India either. However, while western economies chose to respond by putting money into the hands of individuals, in contrast, the Government of India chose to take an unconventional route to respond to the pandemic.The government prioritised livelihood concerns just like its western counterparts but instead of providing direct cash, India chose to provide in-kind support (food support through its public distribution system). Some direct cash transfer element was used, and it was targeted and efficiently delivered through Jan Dhan accounts.

Country:India	Foregone revenues	Accelerated Spending/   Deferred revenues	Liquidity Support
Health	Non-Health	Sub Total	Equity, loans,  asset purchase	Contingent Liabilities	Subtotal
Guarantees	Quasi Fiscal
Spend	14	95	109	18	9	141	16	166
% of GDP	0.50%	3.6%	4.10%	0.70%	0.30%	5.30%	0.60%	6.2%

Values in USD bn

Source: https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19

Summary of spend under non-health (foregone revenue category)

Country	Package	LC bn	USD bn	Type
India Non-Health fiscal support	Insurance cover for health care workers, in kind support ( food )+wage support for poor households	1,490	20.10
Rural Employment guarantee Scheme	400	5.40	Direct Cash
Food support to migrants	35	0.47
Miscellaneous	93	1.25
Food ration extension	829	11.18
Cash payment for targeted consumption	57	0.77	Direct Cash
Interest free Loans to public sector employees	40	0.54
Public Investment	250	3.37
Interest free loans to state governments	120	1.62
PLI Scheme ( to be spent over 5 years)	1,460	19.69
Fertilizer subsidies	650	8.77	Direct Cash
Urban housing projects	180	2.43
Additional Capital expenditure and industrial infrastructure	102	1.38
Rural Employment	100	1.35	Direct Cash
Employment support to formal sector	60	0.81	Direct Cash
Miscellaneous support	99	1.34	Direct Cash
Free Food grains	260	3.51
Interest free loans to states for Capital expenditure	150	2.02
Sub Total	6,375	86.0
Total	7,043	95

Source: https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19

What differentiates the approaches of India and the US?

Non-Health support	Direct cash (USD Bn)	% of GDP
India	18.42	0.7%
US	3,824	18%

India took the route of predominantly supporting livelihood through in-kind food security support and less of putting money into the pockets of individuals while the US spent a significant portion of its non-health fiscal support through direct cash methods.

The latest  inflation rate of India is 7.41% which is less compared to the growing inflation rate in the United States which is at 8.2%. The inflation rates can be explained by the amount of cash that was directly handed to individuals. The US had spent $3,842bn by providing direct cash to individuals. This was about 18% of their GDP. Whereas India spent only 0.7% in direct cash which is a minuscule amount of their GDP.

Furthermore, India’s target inflation rate is 4% with an “upper tolerance limit” of 6%. While the US and other western economies have an inflation target rate of 2%. When compared to their respective target rates and upper tolerance limits, India’s inflation seems to be relatively in control when compared to the US and other western economies.

The Ukraine war exacerbated the inflation situation as food and energy prices shot up. Unlike the US which is self-sufficient in its energy requirements, India imports most of its energy requirements. India mitigated the risk of energy inflation by increasing its oil imports from Russia at discounted prices.

The Government of India also focused on investing its money during the pandemic into building well rounded reforms and providing provisions that aid those who need it. A few examples of these reforms were as follows:

1. Labour reforms

2. Farm reforms

3. Production-Linked Incentive (PLI) scheme

4. Foreign direct investment reforms

When looking at the growth rate of both countries, India’s economy grew by 8.7% in FY2022, whereas the US economy grew by 2.6% in the 3^rd quarter of 2022. According to the IMF for the year 2023, India’s GDP is set to grow by 6.8% compared to about 1% for the US.

Conclusion

Given the statistics of the inflation rate and economic growth of both countries post the pandemic it is evident that Western economies chose to respond by what would help mitigate the issue in the short run but failed to account for long-run implications of inflation. Whereas India chose to observe the situation and take an unconventional route. This is observed in their relatively controlled inflation and better economic growth rate amongst big economies.