THE GREAT IMAGE SAVING EXERCISE
After several seasons of LOCKDOWN as I like to call it and more seasons of UNLOCK ready to be unleashed one has to sit back and think have we really achieved what we were after and the answer would be an emphatic no.
The lock down was imposed to flatten the covid curve but as Mr Rajiv Bajaj Pointed out in a recent discussion with Mr Rahul Gandhi we have ended up flattening the wrong curve i.e the GDP curve. The virus will certainly be contained, but its after-effects will be irreversible, the dent it will cause to the economy will be catastrophic.
The economy which was ailing since 2016 is in life support and the government as usual is in denial of it. The economic package announced was sort of mega loan mela which banks sometimes organise to boost up business. RBI also has chipped in with repo rate cut to give a stimulus to the government’s mega loan mela, and the government is sure that this will provide the booster dose to the economy.
The specialists assigned to assess the economic health of the country have got the diagnosis completely wrong hence the prescription is also flawed. Government’s insistence on addressing the supply side constraints by providing collateral free loans and moratoriums on interest has had negligible impact as the highly leveraged small businesses are in no mood to borrow more.
Injecting liquidity into the system is the need of the hour and lack of resources cannot be an alibi, crisis of such magnitude needs unprecedented measures, and of one of the solutions is the government needs to borrow big.
The question is what is stopping the government, the general opinion is that government borrowing will increase the fiscal deficit and the rating agencies may downgrade India’s sovereign ratings, now that the downgrade has been done and dusted, government may refrain from its image saving exercise of being fiscally prudent and look at ways to revive the economy As Dr Raghuram Rajan very aptly articulated that the buzzword for the government should be “now”, reforms announced in the economic package will have its long term benefits but if the we are not able to control the situation now it could be detrimental for India’s future.