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Is It A Viable Method To Shield The Country's Economy From The Impact Of The Global Epidemic?

It is a rarest of rare situation in written history of human race, may be it will give new opportunities to grow in future.

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Global economy and particularly Indian economy was passing through a tough time. Estimations in the month of February 2020 were expecting growth of Indian economy at 5%. Now it is difficult to estimate any number. It is a clear indication that Government of India is more concerned to stop the spread of virus and to ensure basic livelihood to bottom of pyramid population during this period of lockdown. On the other hand, RBI is concerned with stabilising the economy, controlling the inflation, maintaining sufficient liquidity, monitoring the economic indicators, and so on.

RBI is basically responsible for money supply in the economy. It is trying to balance supply of money in the hands of customers as well as availability of cheap credit to the industry. Reducing Repo rate and reverse repo rate is aimed to provide credit at low interest rate. Indian industry can take long term advantage of this unprecedented situation. This can help Indian SMEs to be cost competitive in post COVID times.

In India, we need to have inclusive economic growth. Sometime numbers alone are not sufficient to describe ground reality. Quality and quantity of economic growth are equally important. Balanced growth in demand and supply can ensure proper economic development. India is a large market for almost all the products. But middle class of India lacked cash in hands in Q3 and Q4 of FY 2019-20 which affected the demand of various products ranging from automobiles including commercial, passenger and 2 wheelers to basic products such as biscuits, hair oil, shampoo etc. Finance Minister in her budgetary speech already announced income tax cuts. These cuts are expected to increase availability of cash with the middle class of India. Relief package of Rs1.70 lakh crore announced by Finance Minister is expected to increase cash supply with bottom of pyramid. Relief package will ensure short term solution to maintain cash supply during the period of lock down. Post lock down, to increase industrial activities, reduction in repo and reverse repo rates will help industries to get monetary input at lower cost. This may take care of their cash cycles.

It is also important to discuss whether uniform declaration for entire economy are going to work or sector specific announcements are needed. Particularly in manufacturing, automobile industry was already passing through a tight situation. Approximately ready inventory of Rs7000 crore of BS IV vehicles is waiting for customers. Automobile sector is one of the most promising manufacturing sector in India. Hon’ble Supreme court has extended the deadline of registration of BS IV vehicles to reduce the inventory of these vehicles. Government of India should allow registration of BS IV vehicles for one full year. Similarly, hospitality and related sectors may also need special attention to revive after normalcy returns. RBI, Finance Ministry and Industry need to work in tandem to come out of this situation. It is a rarest of rare situation in written history of human race, may be it will give new opportunities to grow in future. Let us introspect and get ourselves ready for new life post COVID scenario.

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.

Tags assigned to this article:
economy india reserve bank of india Covid 19

Prof Rajat Agrawal

Department of Management Studies, IIT Roorkee

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