April 22, 2020

Opinion | This crisis could rip apart the usual macro policy playbook

If India sees a weak economic recovery after COVID19, it calls for painful policy options like fiscal austerity, financial repression, higher inflation, and higher tax rates. Extraordinary times lead to a radical departure from the standard macroeconomic policy playbook writes Niranjan Rajadhyaksha in his column for Mint this week.




"There are five main ways in which governments have brought down public debt-to-GDP ratios all through history. The first is rapid economic growth that increases the denominator in the public-debt-to-GDP ratio. Second, attack the numerator through fiscal austerity of the sort some countries in Europe tried earlier this decade to get public finances closer to target. Third, a sharp increase in inflation that in effect brings down the value of past borrowings. Fourth, financial repression by consistently keeping nominal interest rates below inflation in an attempt to transfer financial resources from savers to borrowers. Fifth, higher tax rates as governments seek to suppress consumption as well as collect as much money from citizens as possible."


Read the complete article here.

x Close Window

Please verify your email address to access this content