"Stimulus Package" Explained
A stimulus package of INR 20 trillion was announced recently. Just another announcement, which didn't make sense? We've got you, read on :)
GDP or Gross Domestic Product is the total value of goods and services produced in the country. It is the sum total of all economic activities. The above graph shows how we compare to other countries across the world.
Now, what does this 10% of GDP as "stimulus package" do?
Let us assume that the government borrows some money from USA, and transfers INR 10,000 to everybody's account (because, why not?).
Now, you will spend that amount to buy, say, some shampoo and soaps. This increases the demand for shampoo and soaps. The sales of the company selling shampoo and soaps increases.
As the sales of the company increases, so does its profits. Let us assume that the company invests this extra profit it is earning in making a new factory.
This creates employment (one: labour required in making the factory; two: labour required to operate machines in the factory).
More employment for workers implies more money in their hands. Now, these factory workers can take their kids to an amusement park, too. This increases the sales of amusement park tickets, and thereby their profits.
And so on and so forth.
A stimulus kick-starts a chain reaction: a "virtuous" cycle of growth and economic activity.
Due to the corona-virus pandemic, the world is facing a strange situation. Even when demand for products is there, there is no way to supply these products to consumers. Nations have been locked down, and global supply chains have vanished overnight. This has led to extensive job losses, especially in some sectors like aviation, manufacturing of non-essential items (like cars), etc. Hence, the governments across the world have been forced to take such drastic measures to save their economies.
And, India too, has followed suit.
Hope we could make this easier for you.
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