Strong fiscal policy support needed for economic growth: EY India

New Delhi: Strong fiscal policy support in the form of stimulus measures has been recommended by Ernst & Young to kick start the recovery of the economy, which has been stalled in the country's COVID situation.

EY India's June edition implied the need to utilising the stimulus package, particularly in the health sector.

"The primary focus of the fiscal stimulus package should be on the health sector. This could ensure meeting the short-term healthcare demand arising from Covid's second wave and a possible third wave besides supporting growth and employment in the economy," the report said.

The fiscal stimulus package must focus on income support measures for the vulnerable rural and urban population and make provisions for additional vaccination expenditure given the Center's recent commitment to finance 75 per cent of the country's total vaccine procurement, the report says. It should further take care of any additional capital expenditure towards expanding health sector infrastructure.

"Together, these add to INR2.35 lakh crore of which around INR0.65 lakh crore can be accessed by a restructuring of budgeted expenditure on other heads leaving a balance of INR1.7 lakh crore which would constitute an additionality of 0.8 per cent points of GDP on the budgeted fiscal deficit of 6.7 per cent of estimated GDP," the report said.

"Thus, the fiscal deficit would need to be increased to 7.9 per cent of GDP in FY22 so as to cover the revenue shortfall of 0.4 per cent points and the expenditure additionality of 0.8 per cent points of GDP," it added.

Though an 8.3 per cent growth is projected for 2021, this conceals the expected economic damage from Covid's second wave, the report added.