Covid-19: Extraordinary economic disruption calls for extraordinary bailout

The economic disruption, triggered by Covid-19, is huge and most economies are anticipating a direct hit on their GDP growth. A possible collapse in the world economy can’t be ruled out.

Written by March 23, 2020 13:45

Coronavirus outbreak, first in China and then spreading to more than 180 countries, triggered panic and bloodbath in the financial markets across the globe. India remains no exception to this trembling in stock markets. In last few days, the benchmark index BSE Sensex has been in a downward spiral thus wiping out investor wealth by millions.

equity

The mayhem in markets continues unabated, with no immediate respite in sight. Globally, the stock markets have lost value and wealth. The economic disruption, triggered by Covid-19, is huge and most economies are anticipating a direct hit on their GDP growth. A possible collapse in the world economy can’t be ruled out.

In India, too, the economic consequences are unprecedented. Experts believe we may be staring at Great Depression like scenario while others see it as a menace, worse than the World War. Before Covid-19 epidemic, 2008 financial crisis was hard enough to de-stabilise the economy for a couple of years. Now, the coronavirus has put the economy in a state of seizure.

Delhi Metro rail service to remain till closed till March 31st, due to Coronavirus

Multiplexes, malls are closing, school & entrance exams being postponed, offices working with downsized capacity…. Such a scenario possibly never existed in India. This is an extraordinary crisis and therefore calls for an extraordinary bailout/fiscal stimulus. Govt will have to explore every possible lever in the fiscal policy toolkit to cushion the impact of economic disruption.

‘Social distancing’ followed by partial shutdown has already dealt a blow to informal sector. Job losses are evident, production-consumption imbalance is set to impact economy. Sectors like transport and tourism are already reeling under pressure.

Narendra Modi

Govt needs to pull out all stops to reach out to most vulnerable sections and ensure that those with minimal resources are attended well in advance. It should put together a bailout package, which should commensurate with the glaring challenges. Prime Minister, in address to the nation, has already announced setting up Economic Task Force to combat coronavirus impact on the Indian economy.

Among the instant bailout measures could be direct cash transfer to most vulnerable sections of society, special relief package for poultry & fisheries industry and also some assistance for self-employment persons, who are set to incur losses due to shutdown.

rbi

Governments and Central banks, the world over are pulling out all stops to tackle economic challenges arising out of Coronavirus. In India too, the Reserve Banks has already unveiled measures to stabilise the financial markets and make enough liquidity available. However, this may not suffice. Given the fact that India’s financial sector was already fragile and wavering prior to the current crisis, the govt will have to shell out more from its coffers to meet the challenges.