A lot more needs to be done

Newspaper Rainbow Series     15th May 2020     Save    
QEP Pocket Notes

Context: The recently announced stimulus package provides support to the degrading economy, however there are still some things to be done.

Impact of COVID

  • IMF projected a mild positive growth. MSME’s and migrant labour has suffered the most 
  • Prevalence of low demand reducing the effects of fiscal stimulus to a considerable extent.
  • Liquidity impact on the NBFC’s and other micro finance institutions(MFI).

Steps Taken by the Govt.

  • Monetary Policy: Through RBI proactive role reductions in interest rates, CRR and WMA relaxations were introduced. Targeted Long-Term Repo Operations to provide liquidity support to NBFCs.
  • Fiscal Measures: Through PM Gareeb Kalyan Yojana, fiscal stimulus of Rs 20 trillion (10% of GDP).

Benefits of Fiscal stimulus 

  • MSME revival: Providing working capital support to cover wages and debt as well as equity funds.
  • Protecting poor: Through expansion of MGNREGA, Credit Link Subsidy Scheme for urban poor, “One Nation One Ration” providing flexible choices to migrants.
  • Support to shadow economy: By liquidity support with 100% GOI guarantee to NBFC/MFI.
  • Improved sovereign rating: India’s cumulative package now matches countries with similar tax/GDP ratio and with much higher per capita income for example US, Germany etc.
  • Atmanirbhar Bharat: Covering land, labour, liquidity and laws provides for a solution during current de-globalisation.

      Further actions:

      • Since now that government  has taken care of supply (investment) in the economy, it is time to look for increasing demand (especially consumption) in the economy.
      • Avoiding sustainable debt by keeping a close eye on interest growth differential which determines the surplus necessary for retired debt-GDP ratio.

      Conclusion: Only through a sustained effort on the domestic and global level it is possible to reap the benefits of the stimulus package in revival of the Indian economy.

      QEP Pocket Notes