• Brain Booster Articles

ELEVATION OF THE ECONOMY POST PANDEMIC

Author: Ritika Prasad, IV year of B.A.,LL.B. from B.M.S. College of Law

Co-Author: Palash Sahu, IV year of B.A.,LL.B. from B.M.S. College of Law


ABSTRACT

The paper discusses the current economic crises led by Covid -19. It has pushed the global economy to the brink of the worst seen recessions since the great depression of the 1930s. Covid -19 necessitates a large macro-economic stimulus. The economic crisis is a combination of supply-side disruptions and sinking demand. When the sides have balanced an injunction of money will improve financial stability. As demand is uplifted through stimulus, supply-side disruptions may have to be simultaneously removed so that the two sides may come out of the crises in sync. The economy needs strong measures like policy stimuli and exit strategy.

INTRODUCTION

Coronavirus, no one in this world right now is unmindful of this term. COVID 19 have wrecked lives, livelihood, economies, countries and furthermore. One single virus, and a huge impact. As we all know India is not immune to its deadly effects either. The economic condition of our country is one of the worse affected globally. An economic contraction is explicit as a decline in national output as measured by (GDP) Gross domestic product, that features a drop in real personal income, industrial production, and retail sales. India must implement an intelligent lockdown exit strategy to avoid irreversible growth collapse, SBI said in an exceeding research report. India's economic process slipped to an 11-year low of 4.2 per cent in 2019-20 and three.1 per cent in January-March, all-time low within the last 40 quarters. We are at the brink of recession.

THE LOCKDOWN

India saw the foremost extremely followed lockdowns within the whole wide world. The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive.

The lockdown has been financially draining for 14 crore people as jobs were lost and salaries cut. The middle class and poor have suffered immensely due to this. Loss of livelihood has been a great disaster for millions of families across the world. The lockdown stopped people from moving outdoors. The whole country faced worldwide transportation stagnancy. Only the essentials like fire, police, and medical services were allowed. The 2020 coronavirus has shaken the foundation from the roots. Educational institutions, travel and tourism, industrial production and other entertainment sectors were all put on hold. India's growth within the fourth quarter of the fiscal year 2020 has gone all the way down to 3.1% according to the ministry of finance. Companies like ultra-tech, Grasim Industries, Aditya Birla Group and many more have reduced their operations. The lockdown has been financially draining for 14 crore people pan India as jobs were lost and salaries cut.

MEASURES WERE TAKEN BY THE GOVERNMENT

The economy regulatory stream i.e. the reserve bank of India has already taken some initiatives to counter the coronavirus impact on the economy. The few major implications have relived the citizens during a vivid manner. RBI has announced that it was cutting the repo rate by 75 bps, or 0.75% to 4.4. The reverse repo rate was also abated by 90bps or 0.90%. In a massive relief for the middle class, the RBI Governor also announced that lenders could provide a moratorium of three months on term loans, outstanding as on 1 March 2020. The reserve bank of India decided to carry back the instalments on term loans for three months. This brings an enormous relief for term loan borrowers like home loan, car loan and all retail loans because the economic activities have halted. The RBI also announced that the Cash Reserve Ratio (CRR) would be reduced by 100 bps, or 1%, to 3%. this might be applicable from March 28 and would inject Rs. 1,37,000 crores. The Lenders were allowed lending to recalculate attractiveness by reducing margins and/or by reassessing the capital cycle for the borrowers. A Three-month interest moratorium was also permitted to all or any lending institutions. The impact of all the announcements today shall inject almost 3.2% of GDP.


MEASURES TO BE IMPLEMENTED

To elevate the downtrodden economic condition our government and economists have to ensure full-proof plans for mass benefits. The measures like policy stimuli and exit strategy are the only ones capable to help our economy from this worst scenario

POLICY STIMULI

In economics, stimulus refers to attempts to use monetary or fiscal policy (or stabilization policy in general) to stimulate the economy. The fiscal and monetary policies can be really helpful at this time. Monetary policy refers to the actions of central banks to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth. Fiscal policy refers to the tax and spending policies of the federal government. The idea behind a stimulus package is to supply tax rebates and boost spending, as spending increases demand, which ends up in a rise working rate which successively increases income and hence boosts spending. This cycle lasts until the economy recovers from the downfall. An economic stimulus package is a shot by the govt. to boost the economic process and lead the economy out of a recession or economic slowdown. The two main ways for exciting the economy are expansionary monetary policy and expansionary economic policy. Though it tends to check with economic policy.

FISCAL POLICY

Involves a change in spending or taxation to influence aggregate demand. A Fiscal stimulus could involve: Tax cuts. Cutting income taxes increases income and so causes people to spend more. Tax cuts are simpler if they’re targeted at people on low incomes because low-income earners have the next marginal propensity to consume. Government spending increases. The more the government spends the more money gets into the economy which ultimately results in higher aggregate demand. Potential problems of fiscal expansion Higher government borrowing, resulting in higher debt to GDP. May not be effective in increasing aggregate demand. E.g. people may save their tax cuts. May cause crowding out – this can be when higher government spending ends up in identical fall privately sector spending.

MONETARY POLICIES

Like the fiscal policy, some changes in the monetary policy can also be helpful as both are the different sides of the same coin and to elevate the economy the cooperation and management of both sides are equally important.


Cutting interest rates should raise consumer expenditure and investment. Lower interest rates: Reduce the cost of borrowing. Reduce mortgage interest payments increasing disposable income. Reduce incentive to save. In the exchange policy, only depreciation can boost exports.

COUNTER EFFECTS

Covid-19 may be a large negative supply and demand shock, and combined with the lockout severely reduced short-term growth. As supply recovers, however, while commodity prices remain constrained, there’s a chance to change from the low credit and money growth that characterized India’s post-2011 growth slowdown, to a credit-led recovery that also reduces persistent financial sector stress. It emphasizes the importance of domestic demand in shielding India from global shocks and certainly prolonged shrinking of trade. civilization, like followed in India since 2011, is often counterproductive, since it throttles domestic demand, without releasing critical sector-level supply-side constraints. Standard macroeconomic stabilization, like followed in India since 2011, level supply-side constraints. Measures need to be carefully sequenced because of the way the situation evolves. When the shops open after this period and the growth and survival of the market need measures, which the government. can provide can help kick-start consumption and so production. Before that, even income transfers tend to be saved. This happened in many advanced economies where large transfers and other fiscal stimuli couldn’t prevent large growth shortfalls. Transfers to lower-income groups might be within the kind of coupons with a limited life to make sure they're spent. Tax cuts or waiving stamp duties should be for a limited fundamental quantity. Help for little firms may be conditional on employment to confirm its paid out and raises demand and production. The series of Indian monetary-fiscal stimuli were largely in line with the above principles while tending to be over-cautious

CONCLUSION

Sustained higher growth is possible if context-relevant supply-side policies transform a high-cost economy and permit better utilization of resources, with support from macroeconomic policies that maintain domestic demand, furthermore as from counter-cyclical financial regulation. Critical reforms required include improving the productivity of presidency expenditure, cutting flab, coordination with states, strengthening corporate governance, legal simplification and capacity also as making financial sector regulation more appropriate. This is a crisis like no other, and there’s substantial uncertainty about its impact on people’s lives and livelihoods. Policymakers are providing unprecedented support to households, firms, and financial markets, and, while this is often vital for a healthy recovery, there is considerable uncertainty about what the economic landscape will seem like after we emerge from this lockdown.

ENDNOTES

· https://en.wikipedia.org/wiki/Ministry_of_Home_Affairs_(India)

· https://en.wikipedia.org/wiki/Ministry_of_Statistics_and_Programme_Implementation

· https://en.wikipedia.org/wiki/Bharat_Forge

· https://bfsi.economictimes.indiatimes.com/news/policy/covid-19-impact-rbi-cuts-repo-rate-by-75bps-and-reverse-repo-by-90bps/74840708

· https://bfsi.economictimes.indiatimes.com/news/banking/rbi-brings-cheer-to-borrower-no-emis-for-next-three-months/74841529