Stimulus Package Measures Promise Reforms Over Medium To Long Term

Home »  Finance »  Stimulus Package Measures Promise Reforms Over Medium To Long Term
Stimulus Package Measures Promise Reforms Over Medium To Long Term
Deepika Asthana - 29 May 2020

We all have been home bound since March 25, 2020. This forced hermit like behaviour has resulted it some good things (namely the environment) and some not so good things (namely the economy). The entire nation has been on standstill and as the lockdown 4.0 is nearing an end there is hope and fear engulfing us. As we are trying to return to the normal way of life taking one baby step at a time, there are murmurs of a lockdown 5.0. The lockdown has clearly dented economic activity with all segments of the economy being impacted, albeit at varying degrees.

Governments around the world have done their bit and are continuing to support the fragile economies. The Indian government also announced a slew of economic packages to support the economy and ensure that the impact is as soft as it could be. By the time we reached lockdown 4.0, there has been a realization that maybe we need to live with the virus. Therefore, there has been easing of the earlier restrictions on commercial activity. As these are early days, we are trying to find our way during these uncertain times. Announcements of commencement of limited air and rail travel saw a surge of people flocking the airport and stations, only to realise that many flights were cancelled.

Earlier there were thoughts that the resumption of economic activity would happen instantly after lifting the lockdown and we may see a V-shaped recovery. However, with the extension of every lockdown, these expectations have been thwarted. The longer the lockdown, the greater will be the displacement of labour and markets. Now, there are expectations of a U-shaped recovery. Economic recovery is expected to be slow and prolonged and vary across sectors. Reaching the pre-lockdown normal would probably get extended into FY22.

The GDP growth estimates from economists and agencies for FY21 vary from -5 per cent to -1 per cent. The pandemic is evolving and so is the lockdown. The measures that the government announced were also keeping in mind the fragile fiscal state of the economy. Therefore, the has government extended more credit guarantees to encourage banks to lend to MSMEs without their skin in the game. There are some signs of opening in some states which does offer hope of the nation being prepared to live with the virus and gradually ease curbs on economic activity. However, the powerhouse state ofMaharashtra, a prime driver of the economy, would take more time to open.

With daily cases coming in at more than 5500 infected, there is a probability that lockdown 5.0 may be around the corner. Hence, the least desired scenario of a L-shaped growth curve on the horizon might become a reality. Several recent high frequency economic indicators point to a severe contraction in the overall economy since the imposition of the lockdown. The economic stimulus package measures are mostly reform oriented which would work over the medium to long term. It does not provide immediate relief for sectors affected by the pandemic nor does it provide for a demand boost in the near term. Pray for V and settle for a U-shaped recovery.

Analysing The Fourth And Fifth Tranche Of Economic Package
5 Finance Start-Up Terms Worth Remembering

Related Articles