March 18, 2020

Opinion | The coronavirus battle and its ripple effects on the economy

In this article for Mint, Niranjan Rajadhyaksha writes on the ripple effects of corona on the economy and economic policy measures needed. Excerpts:


"The global economy has right now been hit by five big shocks.


First, the shutdown in China has put global supply chains under stress. China is the world’s main producer of intermediate goods, or the stuff that goes into the gizmos that we eventually buy. Korea is an important source of global intermediate goods as well. Production across the world will be hit if inventories dry up before supply chains are humming again. The risk of dislocation increases in tandem with the complexity of the supply chain in any particular industry."


On economic policy measures needed:


"Fiscal policy will be more important right now. The government will have to boost aggregate demand as production capacity comes back on stream once the shutdown orders are withdrawn. That means direct spending in sectors that have strong linkages with the rest of the economy. Fiscal policy affects the economy with a lag. So more direct intervention may also be needed. Two possibilities are direct transfers to the poor through Jan Dhan accounts and tax write backs for small firms that pay the goods and services tax (GST). India now has the digital infrastructure to move fast on these fronts."


Read the full article here.

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