NEED LARGE FISCAL STIMULUS: EX-CHIEF ECONOMIST OF WB

India needs a large fiscal stimulus as the country faces big risk of slowdown in the economic growth due to COVID-19, former chief economist of World Bank Kaushik Basu said.

He also suggested that the government may need monetisation by the Reserve Bank of India.

Basu said inequality in India is already very high and coronavirus pandemic will make it rise further.

"There are dark clouds over every economy in the world, and India is no exception.

"...We do need a large fiscal stimulus. India has the FRBM Act, 2003, for fiscal management and to make sure that government does not overspend. But the FRBM is a sophisticated piece of legislation that recognises that, during times of natural calamity, we should be allowed to run up larger deficit," he said.

Moody's Investors Service on Friday said it has estimated India's GDP growth to hit 'zero' in FY21, and pointed to a wide fiscal deficit, high government debt, weak social and physical infrastructure, and a fragile financial sector.

The Centre must give states the freedom to spend more, respecting India's federal structure, Basu said, adding that if this continues for too long, it can unleash inflation, so this will have to be a shortperiod intervention.

Replying to a question on need of monetisation, which is loosely referred to printing of currency by the Reserve Bank, he said, "We may need monetisation by RBI but I would recommend using that very sparingly".

"Inequality in India is already very high and so this is worrying. My fear is that the coronavirus pandemic will cause inequality to rise.

"I am in favour of wealth being taxed and inheritance being taxed. No one should be born into extreme poverty and that cannot be corrected without a wealth tax and inheritance tax," he stressed.

Basu, currently a professor of economics at Cornell University, noted that amid risks during this crisis, the governments should begin to control and micro-manage the economy and society.