Post Lock down Challenges And Opportunities Of Indian Economy

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As India begins to open up after a prolonged lock down, it should understand that India's growth story is basically a consumption-based one. India has a multi-layered economy with the rural-urban economy on the one hand and the organized-unorganized one on the other. Hence, solutions should also be multi-layered and ones that can be linked into another solution best suited to the need of the Indian economy. 

At now, there are two stories that we are hearing on India recently. first that if a vaccine or treatment is not developed soon, the number of Covid 19 cases will increase sharply and second is about pick up on economic activity following the relaxation of a nation-wide Covid induced lock down.     

Many people have lost their jobs due to lock down and many have experienced salary cuts. This situation might lead to a structural change in the business  because we may face a situation where consumers start spending on essential items only. Besides, even the malls are opened, people will take time before start of  thronging them because of need for social distancing. In such a situation, big gainers will be e-commerce firms.        

The Government should understand that recovery will not come in the short term and, therefore, to speed up the process, it should hike capital expenditure and announce some big projects. Alternatively, when the Government can see that demand has collapsed and growth in FY21 is headed towards negative territory, then instead of infusing more liquidity by reducing repo rates, loans and so on, it should start taking fiscal measures. All the measures Government has taken till date are mostly on supply side and not the demand side. 

Before the pandemic struck the world, India was facing an economic slowdown and last year, too, actions taken by the Center to rectify the situation were on the supply side, like reduction in corporate tax rates, hoping for some investments from positive cash flows and saving from tax outlays. Government should concentrate and channelize its efforts in welcoming companies moving out of China as India still continues to enjoy the trust of foreign investors and its banking system remain healthy.    

India must find the right balance between leaning towards a fiscal deficit and In all likelihood, ensuring financial stability. In all likelihood, it is expected that Government would come up with a fresh round of stimulus package in the short to medium term. Only time will tell how deeply negative growth will be. The economic situation is bleak but there is a silver lining in every crisis. We just need to find ours.    

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