{"id":34358,"date":"2024-03-14T09:19:36","date_gmt":"2024-03-14T09:19:36","guid":{"rendered":"https:\/\/edukemy.com\/blog\/?p=34358"},"modified":"2024-03-14T09:19:38","modified_gmt":"2024-03-14T09:19:38","slug":"fiscal-stimulus-upsc-economy-notes","status":"publish","type":"post","link":"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/","title":{"rendered":"Fiscal Stimulus &#8211; UPSC Economy Notes"},"content":{"rendered":"\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/edukemy.com\/upsc\/upsc-economy?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Blog+Economy\" target=\"_blank\" rel=\"noreferrer noopener\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1280\" height=\"300\" src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17.png\" alt=\"\" class=\"wp-image-42386\" srcset=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17.png 1280w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17-1170x274.png 1170w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17-585x137.png 585w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><\/a><\/figure>\n\n\n\n<p>During periods of economic downturn or crisis, fiscal stimulus becomes a crucial tool for governments to boost economic activity. This approach, rooted in Keynesian economics, involves increased government spending and tax relief measures to stimulate demand and counter the negative impacts of a recession.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<label for=\"ez-toc-cssicon-toggle-item-69d8bec270166\" class=\"ez-toc-cssicon-toggle-label\"><p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-cssicon\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d8bec270166\"  \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#2008_Global_Recession\" title=\"2008 Global Recession:\">2008 Global Recession:<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#Challenges_of_Sustaining_High_Fiscal_Deficit\" title=\"Challenges of Sustaining High Fiscal Deficit:\">Challenges of Sustaining High Fiscal Deficit:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#2020_Global_Pandemic\" title=\"2020 Global Pandemic:\">2020 Global Pandemic:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#FAQs\" title=\"FAQs\">FAQs<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#Q_What_is_fiscal_stimulus\" title=\"Q: What is fiscal stimulus?\">Q: What is fiscal stimulus?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#Q_How_does_fiscal_stimulus_work\" title=\"Q: How does fiscal stimulus work?\">Q: How does fiscal stimulus work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#Q_What_are_the_potential_benefits_of_fiscal_stimulus\" title=\"Q: What are the potential benefits of fiscal stimulus?\">Q: What are the potential benefits of fiscal stimulus?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#Q_What_are_the_drawbacks_or_risks_associated_with_fiscal_stimulus\" title=\"Q: What are the drawbacks or risks associated with fiscal stimulus?\">Q: What are the drawbacks or risks associated with fiscal stimulus?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#Q_How_does_fiscal_stimulus_differ_from_monetary_stimulus\" title=\"Q: How does fiscal stimulus differ from monetary stimulus?\">Q: How does fiscal stimulus differ from monetary stimulus?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#In_case_you_still_have_your_doubts_contact_us_on_9811333901\" title=\"In case you still have your doubts, contact us on 9811333901.&nbsp;\">In case you still have your doubts, contact us on 9811333901.&nbsp;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/edukemy.com\/blog\/fiscal-stimulus-upsc-economy-notes\/#Visit_our_YouTube_Channel_%E2%80%93_here\" title=\"Visit our YouTube Channel &#8211;&nbsp;here\">Visit our YouTube Channel &#8211;&nbsp;here<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2008_Global_Recession\"><\/span><strong>2008 Global Recession:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Challenges Faced:<\/strong><ul><li>In 2008, India faced the repercussions of a global recession. Tax revenues dwindled, demand slumped, and the corporate sector deferred investments, posing a threat to employment.<\/li><\/ul><\/li><li><strong>Keynesian Solution:<\/strong><ul><li>The government, adopting a Keynesian approach, implemented a fiscal stimulus package to counter the economic slowdown. This involved deviating from Fiscal Responsibility and Budget Management (FRBM) limits to allow for higher borrowing and spending.<\/li><\/ul><\/li><li><strong>Fiscal Measures:<\/strong><ul><li><strong>Higher Deficit and Spending:<\/strong> The government increased fiscal deficit to facilitate higher spending, injecting funds into the economy.<\/li><li><strong>Tax Reliefs:<\/strong> Both direct and indirect tax reliefs were introduced to incentivize spending and support businesses.<\/li><\/ul><\/li><li><strong>Monetary Measures:<\/strong><ul><li>Simultaneously, monetary stimulus measures were implemented:<ul><li><strong>Rate Cuts:<\/strong> Reduction in interest rates to encourage borrowing and spending.<\/li><li><strong>SLR (Statutory Liquidity Ratio) and CRR (Cash Reserve Ratio) Cuts:<\/strong> Lowering these ratios to infuse liquidity into the banking system.<\/li><\/ul><\/li><\/ul><\/li><li><strong>Impact and Recovery:<\/strong><ul><li>The combined fiscal and monetary stimulus was effective in preventing a prolonged economic slowdown. The growth rate rebounded to 8.4% in the fiscal years 2009-10 and 2010-11.<\/li><\/ul><\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Challenges_of_Sustaining_High_Fiscal_Deficit\"><\/span><strong>Challenges of Sustaining High Fiscal Deficit:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Unsustainable Levels:<\/strong><ul><li>While the fiscal stimulus provided a timely boost, maintaining a high fiscal deficit in the long term was deemed unsustainable.<\/li><\/ul><\/li><li><strong>Rollback to Normal Levels:<\/strong><ul><li>Beginning in 2010-11, a calibrated approach was adopted to roll back fiscal deficit levels to adhere to normal benchmarks.<\/li><\/ul><\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2020_Global_Pandemic\"><\/span><strong>2020 Global Pandemic:<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Lockdown Impact:<\/strong><ul><li>In 2020, the global pandemic necessitated another departure from FRBM limits. The lockdowns severely impacted economic activity, prompting the government to resort to fiscal measures to support businesses and individuals.<\/li><\/ul><\/li><\/ol>\n\n\n\n<p><strong>Conclusion:<\/strong> Fiscal stimulus, though effective in managing economic crises, requires a balance. While it provides short-term relief, sustained high fiscal deficit poses challenges. Governments must carefully calibrate their fiscal policies, ensuring a return to normalcy once the immediate crisis is mitigated. The 2008 and 2020 instances illustrate the pragmatic use of fiscal stimulus to navigate economic challenges.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_What_is_fiscal_stimulus\"><\/span>Q: <strong>What is fiscal stimulus?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: Fiscal stimulus refers to the government&#8217;s use of taxation and spending policies to boost economic activity during periods of economic downturn or recession. It typically involves increasing government spending and\/or reducing taxes to stimulate demand and encourage consumer and business spending.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_How_does_fiscal_stimulus_work\"><\/span>Q: <strong>How does fiscal stimulus work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: Fiscal stimulus works by injecting additional funds into the economy, either through government spending on infrastructure projects, healthcare, education, or other programs, or by reducing taxes on individuals and businesses. This extra money in circulation stimulates consumer spending, encourages investment, and helps to create jobs, ultimately aiding in economic recovery.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_What_are_the_potential_benefits_of_fiscal_stimulus\"><\/span>Q: <strong>What are the potential benefits of fiscal stimulus?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: Fiscal stimulus can help mitigate the negative effects of a recession by boosting aggregate demand, preventing widespread unemployment, and supporting economic growth. It can also help stabilize financial markets and restore confidence among consumers and businesses, leading to increased investment and productivity in the long run.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_What_are_the_drawbacks_or_risks_associated_with_fiscal_stimulus\"><\/span>Q: <strong>What are the drawbacks or risks associated with fiscal stimulus?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: One potential drawback of fiscal stimulus is the risk of increasing government debt and budget deficits, which could lead to higher inflation, interest rates, and crowding out private investment in the future. Moreover, if the stimulus measures are not targeted effectively or if there are delays in implementation, they may not achieve the desired economic outcomes and could result in wasted resources.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Q_How_does_fiscal_stimulus_differ_from_monetary_stimulus\"><\/span>Q: <strong>How does fiscal stimulus differ from monetary stimulus?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: Fiscal stimulus involves direct government intervention through changes in taxation and spending policies, while monetary stimulus involves central banks adjusting interest rates, purchasing financial assets, or implementing other monetary policy measures to influence borrowing costs and money supply. While both fiscal and monetary stimulus aim to stimulate economic activity, they operate through different channels and have different impacts on the economy.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><a href=\"https:\/\/edukemy.com\/upsc\/upsc-essay?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Essay\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" data-src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/UPSC-Essay-Course-1280\u00d7300-1-3.svg\" alt=\"\" class=\"wp-image-42688 lazyload\" width=\"781\" height=\"182\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 781px; --smush-placeholder-aspect-ratio: 781\/182;\" \/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In_case_you_still_have_your_doubts_contact_us_on_9811333901\"><\/span><strong>In case you still have your doubts, contact us on 9811333901.<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For UPSC Prelims Resources,&nbsp;<a href=\"https:\/\/edukemy.com\/upsc-cse-prelims-resource-centre\" target=\"_blank\" rel=\"noreferrer noopener\">Click here<\/a><\/p>\n\n\n\n<p>For Daily Updates and Study Material:<\/p>\n\n\n\n<p>Join our Telegram Channel &#8211;&nbsp;<a href=\"https:\/\/t.me\/WithEdukemy4IAS\" target=\"_blank\" rel=\"noreferrer noopener\">Edukemy for IAS<\/a><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>1. 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Mains Answer Writing Practice &#8211;&nbsp;<a href=\"https:\/\/bit.ly\/3mZuVxl\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Visit_our_YouTube_Channel_%E2%80%93_here\"><\/span>Visit our YouTube Channel &#8211;&nbsp;<a href=\"https:\/\/www.youtube.com\/@ShabbirsEduKemyforIAS\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n","protected":false},"excerpt":{"rendered":"<p>During periods of economic downturn or crisis, fiscal stimulus becomes a crucial tool for governments to boost economic activity. <\/p>\n","protected":false},"author":17,"featured_media":34360,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[209],"tags":[235,2653,232,213,140],"class_list":["post-34358","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy-notes","tag-economy-notes","tag-fiscal-stimulus","tag-upsc","tag-upsc-notes","tag-upsc_preparation_strategy"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/34358","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/comments?post=34358"}],"version-history":[{"count":1,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/34358\/revisions"}],"predecessor-version":[{"id":34361,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/34358\/revisions\/34361"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media\/34360"}],"wp:attachment":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media?parent=34358"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/categories?post=34358"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/tags?post=34358"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}