Economics for everyone - Coronomics – Prof. M. Guruprasad, Universal Business School

This economic package is aimed at helping consumers and businesses to manage the crisis.

October 19, 2020 9:34 IST | India Infoline News Service
We have probably not witnessed anything like the environment the pandemic has created. So what do we make of this difficult economic situation? How do we adapt our lives to the new reality? And how do we know what the recovery will be like?

To help control the spread of the virus, governments have issued stay at home orders and other lockdown measures across the globe. Due to this, the economies across the world has grinded to a halt, with non-essential businesses shutting down and consumers staying home except for visits like going to the grocery store. With business closures and slow or no demand hitting restaurants, hotels, airlines, the whole supply chain and other businesses extremely hard, jobless claims have sky-rocketed. Another major industry hurt was the rich oil industry.

As the pandemic crisis began and people prepared to stay home, consumers rushed out to stock up on essential items and emptied shelves across stores. Some experts view that people are unlikely to go back to their normal routines and some behaviours will have been permanently changed.  According to them, the behaviours of individuals and companies have been forced to adjust during the pandemic and chances are not everything will return to the way it was before.  Consumers have been hurt financially and many will try to increase their savings rates to rebuild their finances.  Companies are cash-strapped.  Seeing success with employees working from home, many businesses or individual people may choose to continue with these policies. This could also impact business travel as people have seen what can be accomplished with virtual technologies.

Global Impact:

According to experts, the present crisis impact the global economy and business in terms of  Decreasing demand for products and services, Creating hurdles  in global supply chains, - Creating financial crisis, labour force are severely impacted, Declining travel, creating pressure on public finances; both healthcare costs, business support and compensation to individuals. According to some reports, the pandemic of 1918 Spanish Flu hit the global economy very hard in 1918 and lasted through 1919 and was heavy. Some experts view that the impact would be much higher in 2020 and the unemployment rate could reach much higher, closer to levels last seen during the Great Depression.

One of the major disruptions is in the manufacturing sector. Some of the key areas which impacted the global manufacturing sector are

1. Impact on direct supply disruptions that will hinder production.

2. Impact on Supply-chain. This will amplify the direct supply shocks as manufacturing sectors in the nations.

The other major economic impact include,

1.  Macroeconomic slowdown in aggregate demand

2. Delay in Investment by firms.

3. Rise in Unemployment

4. Volatility in the Stock Market and overall financial failures.

5. Impact on Business and Trade

6. Tourism and Travel

7. Entertainment, Hospitality

8. Education

9. Work life

To mention a few. In fact, it has changed our whole way of life

Initially, as of March 2020, the nations with the most reported cases include (in order) China, Korea, Italy, Japan, US, and Germany – with the cases growing rapidly everywhere across the globe. Now it is a Pandemic and everywhere. It is important to note that it has hit hard most of the economically dominant nations which contribute to more than two third of the global supply, demand, GDP, manufacturing, services and world trade.

Indian Economy - Initiatives by the Government

The Government of India announced a huge package (around 20 lakh crores) to revive the economy. The government’s policy announcements part of its initiative known as the “Atmanirbhar Bharat” consist of 5 pillars which can hold and push the Nation from the challenge posed by the crisis and the general economic slowdown. The five pillars are namely, Economy, Infrastructure, Systems driven by Technology, Demography (high proportion of younger population) and demand. In the early days of Covid-lockdown, RBI announced Rs 8 lakh crore stimulus. Then came another Rs 12 lakh crore boost. The objective was primarily to pump in liquidity.

The government package is all about putting money into the hands of the entrepreneurs to push the economic activity back on its foot. Let’s look at some of the steps taken by the government to push the economy. Some of the key steps are related to

- Special Package for MSMEs, Small business

- Agriculture

- Sectoral focus

-Rural employment guarantee (more allocation to MNREGA)

-Interest rate concessions through RBI

- Emphasis on local products/ Make in India

-  Special thrust for the NBFCs and MFIs

This economic package is aimed at helping consumers and businesses to manage the crisis. To keep the projects going, hence employment, production and in turn the economy.

The Monetary policy, by the RBI, drives the ability for banks to lend money to consumers at lower rates (with lower interest rates for home loans and business loans), which helps stimulate the demand side of the economy. Along with concessions for MSME’s, job creations through MNREGA, interest rate concessions and other policies, the government expect to revive the economy.

As discussed, the massive economic package is trying to unshackle the economy. It will take some time before the Rs 20 lakh crore proposals to get into the economy to provide the required economic stimulus. We need to wait and sail through this crisis.


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