India has recently been thrust into the spotlight due to a series of new policy measures aimed at tackling the Covid-19 pandemic. These measures are expected to have multiple impacts over a potentially drawn-out timeline that could even span a year. In this article, we will discuss these new policy measures and their potential implications.
Recent Welfare Measures
The Indian government has introduced various welfare initiatives in response to Covid-19. These measures are primarily designed to assist the most vulnerable members of society, including workers in small businesses. Assistance comes in the form of both food and monetary aid, intended to alleviate some of the financial burden caused by the pandemic.
Covid-19 Testing and Costs
Critics argue that India’s testing rates are too low given the size of its population. They suggest that the government should shoulder the entire cost of testing to ensure comprehensive coverage. The emphasis is on increased testing and affordability to effectively manage the spread of the virus.
Comparison with Developed Countries
Emerging Market Economies (EME), such as India, struggle to compete with the sweeping measures announced by developed countries like the US, UK, and Germany. These countries have implemented strategies designed to offset the economic fallout from the pandemic, including generous government bailouts and central bank interventions.
Fiscal Deficit Challenges
India has long struggled with a high national fiscal deficit, which will undoubtedly grow due to the pandemic. The twin challenges of declining revenues and increased expenses incurred by state governments in handling the health crisis will further strain India’s fiscal health.
Foreign Investments
The volatility of foreign investments poses a significant risk to India’s economy. This was evident when $15 billion exited from Indian equity and bonds in March, out of a total investment of around $300 billion. Additionally, the country experienced poor equity performance in dollar terms compared to its EME counterparts.
The Impact of Trade Barriers
To protect domestic industries, India has imposed high customs duties on imports. However, these trade barriers have been criticized for undermining national competitiveness as it hampers export earnings that are crucial for servicing external liabilities.
Issues with the Indian Banking Sector
India’s banking sector is confronting an impending rise in Non-Performing Assets (NPAs). Yet, poor disclosure of financial health and delays in resolution mechanisms are exacerbating an already critical situation. These issues contribute to an increase in the banking sector’s risk premium, further damaging the financial stability of the nation.
Role of International Investors
The perception and actions of international investors can significantly impact India’s economy. As the world grapples with COVID-19, investors will likely evaluate countries based on how effectively they address the health crisis. This in turn will determine how quickly the respective economies recover.
The Way Forward
Mitigating the economic damage from the pandemic requires careful planning and strategic actions. Reduction of high customs duties, swift resolution of banking sector issues like NPAs, and strengthening fiscal and monetary responses are all necessary measures. Through careful policy planning and implementation, India can navigate these turbulent times and set itself on a path towards recovery.