A long-term strategy to steer the economy out of this crisis

The Tribune     22nd June 2020     Save    
QEP Pocket Notes

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 - 

  1. Healthcare capacity expansion: It will give both consumers and investors’ confidence in the economy. 
  2. 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.

QEP Pocket Notes