Indian Economy Notes: Economic Impact Of The Pandemic

Pandemics are cruel, not just in terms of the demands they place on the health and immune systems of people and the hardships they create for families, but also because of the economic — and social — disruptions they cause.

There have been reports of migrants, whose livelihoods have been hit, heading back to their villages. A large number of them live in unsanitary conditions and do not always have access to adequate water supplies.

The effect of the strong clampdown measures taken by the government to arrest the spread of the coronavirus is beginning to be felt across a swathe of the economy.

It should aim to limit the immediate economic fallout through some forms of targeted income support, especially for those in the more vulnerable segments of the informal economy, ensure continuity in supply chains for essential items, and easier financing conditions.

The Centre has formed a task force under the finance minister to assess the economic impact of the pandemic and suggest measures, which could include regulatory forbearance, government guarantee for loans to SMEs, deferment of taxes, and livelihood support for unorganised workers.

It is likely that the disruptions in economic activity will continue well into the upcoming financial year.

The policy response to deal with this public health crisis requires coordinated action at both Central and state levels.

Daily wagers, and people who live below the poverty line, and also on the margin of Indian cities, should be adequately compensated.

Bleak Scenario

Most global economic superpowers have allocated up to 1 pc of their GDP totting up to $3.28 trillion already. Accounting for all the central bank interventions, tax and interest payment holidays and stock market sops the world has set aside over $7 trillion–nearly 8 pc of the global GDP. US has pledged 5 pc of GDP towards fighting coronavirus.

In contrast, India has very little allocated towards emergency or disaster management at its disposal. Should the need arise, we’ll be scrambling! The Prime Minister’s Relief Fund has all of Rs 3,800 crore (barely $500 million at current rate). For FY21, India could dig into the State Disaster Response Fund’s (SDRF) Rs 20,000 crore provision for the year as defined by the Finance Commission every year (but last year’s grand-in-aid towards SDRF stood at just Rs 10,937 crore). Or, Centre could draw from the National Disaster Response Fund’s (NDRF) Rs 25,000 crore provision which is meant to supplement the SDRF.

The current corpus of $563 million from PM Relief Fund and disaster management will not be enough to deal with the crisis even in one state, let alone the nation the size and population of India.