Supply disruptions, a sudden fall in domestic demand, and potential stress on the banking and financial sectors are the three big challenges the government has been battling with.
- Rumki Majumdar
There is almost no doubt that the pandemic is a “black swan” event and no government could have been prepared adequately to deal with the scale of the impact it is likely to have on their economy. That said, the Indian government has done a commendable job of taking quick actions and in a phased manner. In the order of priority, the government has first tried to manage the spread of the pandemic (initially by advisories and then a complete lockdown) and then by announcing fiscal and monetary stimulus. Given there is so little precedence, this is probably the best way to go about it because this gives the government the time to analyse the real situation, assess the existing resources it has, and prepare itself better to implement the announcements effectively.
With India going into a complete lockdown for a few weeks, supply disruptions, a sudden fall in domestic demand, and potential stress on the banking and financial sectors are the three big challenges the government has been battling with. To address these issues, the government has made several fiscal and monetary policy announcements in quick succession, which are in line with what other major economies have followed. Most likely, it has amassed intelligence based on what China, the US, Germany, and other Asian governments have done so far.
That said, ensuring a smooth supply of essential goods and services and that the targeted stimulus reaches the intended beneficiaries swiftly and efficiently will be critical. Streamlining these processes with limited resources and infrastructure, and in such a tight timeline will be no easy task. What is encouraging to see is that policymakers are coming up with innovative ideas to deal with the situation (such as converting train coaches into isolation wards) and significant resources and assistance are coming from the private sector.
Going forward, the government will likely keep a vigil on how the situation is evolving to decide on the next steps. Our research suggests that the focus will be on three aspects—managing the health crisis; protecting income and employment, particularly for the disadvantaged and vulnerable sections of the society; and supporting the corporate sector and facilitating their quick recovery. Ensuring an adequate supply of medical equipment and resources; creating and using digital platforms on an urgent basis to transfer targeted benefits to the unorganised workers, and; advancing credit to MSMEs through refinancing facilities to banks and other financial institutions are some of our several proposed measures to deal with this unprecedented crisis.
The rapid and phased actions suggest that there is a strong political will (backed by a mandate) to do ‘whatever it takes’ to limit the spread of the virus as well as its impact on the economy.
Rumki Majumdar is an Economist at Deloitte India. Views expressed are the author’s personal.