In his column for Mint, Niranjan Rajadhyaksha explores which stakeholders will help absorb the pain as the economy hobbles back to normal in the coming quarters.
"The two obvious shock absorbers are the government budget and the banking system. The Indian government has kept much of its fiscal firepower dry so far. A lot of the early intervention has been focused on credit guarantees rather than direct spending, which is a good idea, given the need to prevent capital destruction.
However, higher fiscal spending will be needed to support aggregate demand as the economy gets back on track. As this column has argued earlier, since risk aversion among households and firms could lead to higher precautionary savings as well as demand for safe assets, such as government bonds, it is possible to support a higher fiscal deficit for some time. There is also some space for extra money creation by the Reserve Bank of India."
Read the full article here.