A sustainable economy is dependent on growth, and its recovery is dependent on a fiscal push by the Government. Critically comment. (250 words)

Question on Sustainable Economy

Difficulty Level: Moderate

Fiscal stimulus refers to increasing government consumption or lowering of taxes. A fiscal stimulus by the Government in various sectors of the economy helps is helpful in improving economic indices like GDP growth, by impacting the sectors directly and indirectly.

Why is fiscal push important for growth and recovery?

• A fiscal push in the infrastructure sector helps in creating fiscal multipliers, which in turn increase the demand on machinery and equipment made by private companies, creating growth opportunities.
• Example – National Pipeline Infrastructure
• A government push in fiscal terms in Health, leads to better health outcomes, and in turn with better human resources for the economic growth in long term.
• Example – Increasing India’s GDP Spending from 1% to 2.5-3.0%.
• A spending in Research & Development have high chances of increasing growth opportunities in sectors dependent on technological development for more efficient products, in turn increasing growth and employment opportunities.
• A focused fiscal stimulus allows people and business to keep buying good and services, which bolsters aggregate demand, thus reducing the recession gap, in turn pushing stronger recovery.

How it could be counter-productive?

• It could push inflation up, causing even more restlessness and lesser purchasing power.
• It could further be detrimental to the socio-economic structure, pushing for more inequality
• A stimulus could cause inflation in sectors like housing and stock market.