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Home » IANS » Policy moving forward post corona (Column: Behind Infra Lines)

Policy moving forward post corona (Column: Behind Infra Lines)

By IANS
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BY TAPONEEL MUKHERJEE

The policy responses globally to the coronavirus pandemic-induced dire economic scenario has treaded the familiar path of infusion of money into the financial system. As India braces itself for the longer-term economic impact of the lockdown, it is pertinent to reflect upon specific policy issues that will require careful attention from the industry and the government alike.

Governments and the central banks globally have responded with increased money supply into the economic system to stem the short-term cash flow problem. In the long-run, policies in India must look to ensure that a sustainable recovery is on the cards by tackling issues on both the demand and supply side. As the economic machinery has stopped working, unemployment and lower incomes will result in a drop in aggregate demand not just in India but globally. On the supply side, disrupted supply chains will necessitate higher input prices and processing times in production.

Essentially, the government will have to look beyond the policy measures announced so far to effectively provide businesses “bridge-capital” to tide over the extreme shock following total demand collapse, and supply chain disruption that the corona virus-induced lockdown has caused. Providing this “bridge-capital” to businesses will be critical to reviving the economy, that too at a rapid pace. Suggestions from experts on how to give businesses the fillip have ranged from tax breaks to business grants. While the exact mechanisms utilised may vary by sector, the realisation that the procedure needs to be both implemented well and practically is vital for all to understand.

In providing businesses with “bridge-capital”, the government needs to ensure that the issue of moral hazard is avoided. For instance, where businesses are provided with the option of deferring a specific component of tax payments (with no interest penalty), then it is vital to communicate to the businesses that this is tantamount to an interest-free loan that must be repaid in the future. The aim must be to assist businesses to become more efficient going forward. It must be underscored that in an economic downturn, not all companies can be saved. Economic downturns are preceded by a crisis and ensure that certain inefficient businesses are weeded out, a natural concomitant of the economic cycle. “Survival of the efficient” is the strategic dictum. The government must ensure that businesses have both clarity and incentives to realign or even redesign their businesses for greater efficiency and growth to forge ahead in the post-corona world.

The practicality of the government efforts to boost the Indian economy must factor in the core issue, that the government’s capacity to provide businesses capital is limited. In an unprecedented scenario where the economic wheels come to a complete halt or have stopped turning to a large extent, the government can only provide money to a limited extent. The key is to provide businesses access to extra capital is to do so with clarity of purpose, judged on the touchstone of having efficiency.

Additionally, it is also vital that policies carefully address the long-term implications and intricacies of the economic linkages in the system. As far as possible, policies that look to ameliorate short-term pains must not do so at the cost of creating more significant problems down the road in the longer run. For instance, if certain payments to a sector are to be delayed one needs to be mindful of the fact that the industry that will get delayed payments may also have potential liabilities that in turn need payments to be made and so on. Therefore, a delayed payment schedule for one part of the supply chain has implications for the entire length and breadth of the supply chain.

That government policy and expenditure must be directed to jump-start the recovery in both India, and indeed the world over is evident from the policy measures such as central bank balance sheet expansion and government grants and loans to businesses being announced all around. More importantly, removing roadblocks to the flow of money through effective policymaking is the key to emerging stronger from the corona virus-induced economic slowdown. In the long run, the capacity to remove inefficiencies that impede the flow of money by cleverly designed policies can serve as the proverbial silver lining in the cloud for India.

(The views expressed in this article are personal and that of the author. The author heads Development Tracks, an advisory firm. You can contact him at [email protected] or @Taponeel on Twitter)

–IANS

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(This story has not been edited by Newsd staff and is auto-generated from a syndicated feed.)
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