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BW Businessworld

Stimulus Must Be Targeted Well; Implemented Better

While we celebrate the ‘freedom’ from the lockdown and ride to ‘livelihoods, mingle with colleagues, transact with others’ one wonders if something is amiss.

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Most haven’t recognised that this recession is not caused by an economic bubble, or related to policy frailty or spurred by business error. It is a natural disaster and the effect is as much as a health calamity as an economic shock.

While we celebrate the ‘freedom’ from the lockdown and ride to ‘livelihoods, mingle with colleagues, transact with others’ one wonders if something is amiss.

‘Livelihood & lives’; both important 
We are ‘chancing’ our health; reckless, riding roughshod; ignoring precautions, endangering self and grieving others every time we step out to enjoy a meal, revel in the multiplex, shop and take in a leisurely stroll.

The second wave of the pandemic is imminent.

The secondary impact will once again bring in the Sophie’s choice; ‘if the virus is not contained many will die, but if the containment is at the cost of the economy many more will suffer’.

The lockdown has saved many lives, provided us the time to prepare and respond, and reducing the fatality rate.

However, locking the economy again will plunge economic activities, slow demand, and reverse the recovery cycle. It will sink the economy into acute repression, perpetuating into a depression.
5% of the population will be affected; 5 in every thousand fatally. Overwhelmed health infra has been an abject lesson for what to expect.

Financial uncertainty & stress
Lockdown 2 will sink the MSMEs, weaken the larger corporates and stress the financial sector deeply; banks will be precariously positioned, NBFCs paralysed. A rupee in every ten lent may not return. Higher NPAs will tie up funds.

There will be several other collateral damages including a desecrated credit culture, denying the deserving much needed credit. This may precipitate further to the priority sector, spiralling into farmers’ distress and social unrest.

The poor and the deprived will lose livelihoods, subdued wages. The middle income will experience dwindling asset and, diminishing savings, most others will face uncertainty & experience financial stress. Despondency and hopelessness may fuel unrest.

Resilient & implementable policies
Labour market and ‘workspace’ will evolve. ‘Work from home’ will encourage more women in the white collar sector, while the blue collar space will see intense ‘unionisation.

Rebuilding the business will need ‘integrating’ supply chains, reorienting process; and innovation. Change is challenging.

Government can employ several instruments including relaxing regulations for compliance, repayment and even advance payment to save businesses.

In the meanwhile the government’s ambitious, much touted, but badly targeted and un-implementable stimulus package has not worked and wont. Instead it will worsen fiscal deficits deficit numbers and forestall the much needed stimulus.

Demand fuels the virtuous cycle 
The government must reorient the package and target the pockets of the consumer to fuel demand and stimulate the virtuous cycle of demand led growth.

The policy makers need to develop innovative and yet robust templates, policies that are broader, resilient and sustainable. The government must focus on completing projects particularly rural infrastructure. Completed projects catalyse economic activities, are value drivers, and high multipliers. In addition, a focussed administrative and generous monetary measure will create ecosystem for gradual revival.

Effective implementation is necessary to navigate through the crisis for the inevitable second wave of the pandemic.

Once the spread and the secondary effect are managed, economic recovery could surprise us.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Dr. Vikas Singh

The author is a senior economist, columnist, author and a votary of inclusive development

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