India's Measures to Counter External
Shocks: Proposal for an Economic Stabilization Fund
In the backdrop of rising geopolitical tensions in
West Asia, coupled with a surge in global crude oil prices, the Union
Government has proposed the creation of an Economic Stabilisation Fund (ESF) to
enhance India’s resilience against external economic shocks.The Finance
Minister Nirmala Sitharaman announced the proposal while presenting the Second
Supplementary Demand for Grants in Parliament.Under the second supplementary
demands, the government has sought Parliament’s approval for ₹57,381 crore as
an initial allocation towards the ESF.
The total corpus of the ESF is proposed at around ₹1
lakh crore, with the balance to be mobilised through savings and inter‑account
transfers from other ministries and departments.The Fund will help manage the
economic impact of global crises, supply disruptions, and sector-specific
shocks.The government has emphasized that the additional expenditure will
remain within the fiscal deficit target of 4.4% of GDP.
About the Fund
¨
Nature: The Economic
Stabilisation Fund is a proposed dedicated fund acting as a fiscal buffer
parked within the Union government’s accounts to be tapped during periods of
external or domestic macroeconomic stress.
¨ Size and funding: Target
corpus of about ₹1 lakh crore; around ₹57,381 crore is being provided via the
second supplementary grants, with the remainder to come from
re‑prioritisation/savings across grants.
¨ Purpose: To provide
fiscal headroom to address global headwinds—especially oil‑price spikes, West
Asia‑related disruptions, and other exogenous shocks without abrupt expenditure
cuts elsewhere.
¨
Use: Envisaged as a
flexible instrument that can support targeted relief, sectoral support, or
cushioning of budgetary pressures when shocks have sizeable fiscal or growth
implications.
Need / Significance
¨ Macroeconomic Stability:
Provides a buffer against external shocks, helping maintain stable growth and
inflation levels.
¨
Energy and Import Risk
Management: Shields the economy from volatility in crude oil prices, which
significantly impacts India’s trade deficit.
¨ Counter-cyclical Fiscal
Policy: Enables the government to increase spending during downturns without
abrupt fiscal stress.
¨ Supply Chain Resilience:
Helps mitigate disruptions arising from geopolitical conflicts, pandemics, or
global trade shocks.
¨ Investor Confidence: Demonstrates fiscal prudence and preparedness, thereby strengthening confidence in India’s economic management.
¨ Policy Flexibility: Reduces dependence on ad-hoc measures, ensuring a structured and timely response mechanism.
