August 25, 2020

Our corona crunch is quite unlike any other crisis in recent times

In Mint, Niranjan Rajadhyaksha compares the macroeconomic variables of India’s previous economic crises with the current shock. He argues that the COVID-19 crisis is different, and calls for developing a new policy response.

Excerpts below:


"India has faced three big economic shocks this century. The first one emanated from the North Atlantic financial crisis at the end of 2008, to end a splendid economic boom. The second one hit when Indian macroeconomic imbalances were exposed after the US Federal Reserve announced in the middle of 2013 that it would gradually end its quantitative easing. We are currently living through the third big shock, as the covid pandemic has brought the entire world to its knees.

 

It is likely that India’s economic output will not go back to its pre-covid level till the fourth quarter of fiscal 2021-22. A quick calculation, assuming trend growth of 6%, shows that, over the next two years, India could lose around $350 billion of extra output because of the covid shock. Hysteresis could set in, especially if the country’s capital stock is damaged by firm bankruptcies. The policy response this time will thus have to be very different from the textbook responses of 2008 and 2013."

 

Read full article here

 

Topic : State Capacity / In : OP-EDS
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