Context:The pandemic induced crisis and government response open the gateway to future growth.
Present shock is unique: The corona induced shock is much bigger than the 2001 (Bubble Burst) and 2008 (Financial crisis).
- As long as there is no vaccine, big risks to the economy will remain.
- Lockdown induced global economic disruption which has an impact on the economy.
An Unprecedented challenge to the economy: GDP contraction by 10 % - will have an impact on each of the three groups—citizens, enterprises, and the government.
- Individual: could be in loss of compressed salaries, falling remittances, lower interest rates and dividends.
- Government: It could lower taxes and higher spending.
- Enterprises: The crisis will change their view of safety buffers, and future investment cycles.
Government as engine for growth:
- Short term strategy: government will be the most important entity, capable of leading a recovery until Private sector investments and consumption kick in.
- Long term strategy: It involves strengthening the weak link of the economy the poor, the informal sector, and micro, small and medium enterprises (MSMEs).
Way forward: the primary focus at present could be -
- Healthcare capacity expansion: It will give both consumers and investors’ confidence in the economy.
- Financial sector measures: Since the NBFC crisis, in-built risk aversion has placed limits on credit delivery. RBI would be expected to bring NBFCs back into the credit delivery framework and also help support non-MSME borrowers impacted by the coronavirus shock.
Conclusion: Timely and well-targeted intervention would give India an unprecedented opportunity for economic expansion amid tectonic changes in global supply chains.