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Infrastructure Push Helps Chinese Economy Revive As Fiscal Constraints Choke Indian Growth - Experts

© REUTERS / Adnan Abidi/File Photo / A man walks inside a conference room used for meetings between military commanders of China and India, at the Indian side of the Indo-China border at Bumla, in the northeastern Indian state of Arunachal Pradesh, November 11, 2009
A man walks inside a conference room used for meetings between military commanders of China and India, at the Indian side of the Indo-China border at Bumla, in the northeastern Indian state of Arunachal Pradesh, November 11, 2009 - Sputnik International
COVID-19 has taken a massive toll on the Indian economy even though the government and the nation's reserve bank have jointly poured in $391 billion since the onset of the pandemic.

As key global economies have witnessed a massive disruption in their output due to the ongoing COVID-19 pandemic, China stands as an exception, having recorded positive economic growth in the second quarter of 2020.

India, which has posted a massive GDP contraction of 23.9 percent in April-June, posted the worst contraction among the global economies.

In contrast, China posted year-on-year GDP growth of 3.2 percent during the same period, while the US witnessed a 9.1 percent contraction.

During Q2, Japan recorded negative growth of 9.9 percent, Germany's economy shrank 11.3 percent, and Canada's GDP lost 13 percent.

Even though China reported growth in its economy at a time when others were contracting, it had faced the brunt of the pandemic the previous quarter, as its economy shrank 6.8 percent in January-March of this year - the most critical time for the country, where the pandemic started.

Comparing the Indian and Chinese economic response to the pandemic, experts pointed out that it needs to be remembered that the Indian lockdown was nation-wide rather than limited to a few regions, and caused a larger economic disruption.

Rahul K Mishra, a professor of strategy and international management at the IILM Institute of Higher Education, told Sputnik, “In China, the lockdown was limited to a couple of provinces. The Indian lockdown was on a national scale, which led to a large-scale disruption of economic activity, barring agriculture, which contributes 18 percent to the Indian GDP.”

“So, the service sector, which comprises 60 percent of the Indian GDP, and other major economic sectors like real estate and manufacturing were deeply impacted by the lockdown.”

“Economic damage was big. Since China’s lockdown was limited, they could recover and regain positive growth. In our case, recovery will take time,” he added.

On the institutional intervention to douse the economic distress stoked by the pandemic, experts are of the opinion that India has a limited fiscal space.  

“If you look at the institutional intervention from the government or the Reserve Bank of India, one has to understand that India has got a limited fiscal space,” Mishra said. India's GDP was about 2.719 trillion USD in 2018, whereas China's was 13.61 trillion USD in the same year; the two countries have similar populations of around 1.4 billion people. 

Comparing Indian government assistance to the benefits that have been doled out in the US or China, “we have not provided a stimulus to that level”, he said: “India has provided a loan moratorium, the restructuring of debt, and a sovereign backed mortgage facility, but direct fiscal stimulus has not been provided.”

To bail out the economy from the pandemic blues, Indian Prime Minister Narendra Modi rolled out a $266 billion economic stimulus package on 12 May.

The Reserve Bank of India (RBI) has infused liquidity worth $125 billion since the first case of COVID-19 was reported in Indian in late January.

Experts do feel that the Indian government needs to come out with additional measures to stabilise the country’s economy in the wake of the pandemic.

Economist N.R. Bhanumurthy, the vice chancellor of the B.R. Ambedkar School of Economics, says the government needs to think in terms of additional sectoral measures.

Talking to Sputnik, he said: “There is a need to recapitalise the banks so that they are able to support growth. While the measures already announced will take time to have an impact on the economy, helping out the stressed sector will help bring back growth.”

Comparing the economic response to the pandemic, a former RBI governor told Sputnik, on condition of anonymity: “On the monetary front, the response of China and India to the pandemic has been more or less similar.”

“However, the key differentiator is China’s continued investment in infrastructure such as highways and railways, while in India the focus is on bringing back consumption in the economy. Fiscal constraint in India is not allowing enhanced infrastructure expenditure,” the former RBI chief added.

The government data reveals that India is grappling for revenue sources even as the pandemic is on the rise.

According to Central Government data, India’s fiscal deficit has breached the full year target in four months -- April to July. The fiscal deficit has touched $109.46 billion, which is 103 percent of the target for the current financial year (April 2020 - March 2021).

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