Context: High consumer and wholesale price inflation numbers amid low/no growth have made matters interminably worse for India’s economy.
Temporal rise in inflation is bound to occur as decentralized lockdown curbs
Sporadic spending pattern: Due to rising uncertainties -
As economic agents (say, firms or households) would act by their own devices to decide what, where and how much to spend, without taking into consideration whether sufficient supply of a given product or service is available.
For e.g. service providers like saloon are about to operate on low capacity despite high demands due to the risk of exposure to infection. This will push the prices up.
Monetary policy may be ineffective: Since the factors behind local inflation are no longer explained by the causal binaries of demand-pull and/or cost-push alone (which are relevant in normal times).
Way forward
Greater direct income support through unconditional cash transfers to households: As this help drive both private investment and employment.
Discretionary expenditures are inadequate such as rations, food stamps, or increased allocation for rural employment, as it would be targeted and covers only a specific section of the population.
Need for fiscal-monetary support measures: To address novel behavioural causes, such as pandemic-driven anxiety, rising uncertainty among consumers and capital scarcity among producers.
Pursue a localized and counter-cyclical fiscal-monetary approach that combines instruments of direct government support with easy liquidity and bank credit provisions so that economic agents have a wider set of choices.