The effect of govt's economic measure will be to lead to a small rise in consumption in the short run, but the effect will dissipate quickly.
Even as Finance Minister Nirmala Sitharaman announced a mega economic package of nearly Rs 1.7 lakh crore to provide cushion to the sagging economy, monetary policy discussions at the RBI have noted that this package is merely a relief than a stimulus. “A relief is not a permanent fix. The idea of the measure announced by the government is to weather the storm so that no one has to go without food and spending on essential items,” said RBI Monetary Policy Committee member Chetan Ghate. The effect of this measure will be to lead to a small rise in consumption in the short run, but the effect will dissipate quickly, he added.
The effect of coronavirus on the Indian economy is likely to be severe and no definite outlook for growth has yet been estimated. The manufacturing sector is expected to drastically slow down due to the closure of factories while the services sector is expected to be impacted the most due to restrictions on travel, transport, hospitality, tourism, and professional and financial services, according to Pami Dua, Member, RBI MPC. Construction, trade, consumer demand, and investment spending are also likely to drop sharply, she added. Ironically, this time no country is likely to become the engine of growth as the pandemic has spread worldwide and all the countries are suffering.
As India spent more than a year in a slowdown, the economy was expected to gradually improve in the current year, however, with the latest pandemic effect, this hope has also faded away. “Expectations of a shallow recovery in 2020 from 2019’s decade low in global growth have been dashed. The outlook is now heavily contingent upon the intensity, spread, and duration of the pandemic,” the Reserve Bank said.
The Monetary Policy Committee added that the effect on both on the demand and supply sides could be severe and the need of the hour is to do whatever is necessary to shield the domestic economy from the pandemic. “The erosion of consumer confidence and investment sentiment can operate in an adverse feedback loop to worsen the growth outlook even further,” said RBI Governor Shaktikanta Das.