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Covid-19 to have deflationary impact owing to demand evaporation: CEA

15 May 2020 Evaluate

Chief Economic Advisor (CEA) K V Subramanian has ruled out any impact of stimulus on the price situation and said that the COVID-19 pandemic has severely dented the demand for non-essential or discretionary goods, creating deflationary conditions. Subramanian also said that a good part of the Rs 20 lakh crore stimulus package is designed in a manner that the fiscal deficit remains under control.

He mentioned that COVID has a significant deflationary impact because demand especially for non-essential or discretionary goods and services will go down significantly. Therefore, it is unlikely that there would be too much inflationary impact through fiscal deficit or stimulus package.

Besides, he stated that the proposed stimulus package will generate demand by infusing liquidity into the system and thus perk up the economy. He said ‘a good part of stimulus is utilising leverage to deliver...while at the same time ensuring that the fiscs remain actually under control.’

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