Will the flight from economic distress beats the fight against COVID-19 virus?

The economy of India is going to face an output loss of $190 bn(according to Nilesh Shah, MD, Kotak Mahindra Asset Management Company) as the wheels of commerce have been ground to halt. The arithmetic of the GDP of India is about $3 trillion, if it remains shut down for a month with a 100% drop inactivity it will create an output loss of $250 bn but as it is likely to be shut for 47 days it will create an output loss of $190 bn assuming that it will open on May 17.

Albeit, there could be a beacon of hope as the oil price has seen a significant reduction due to less demand in the world, it will provide $40-45 bn of benefit in terms of trade deficit this year. Another way to decrease this is to replace China-made goods with India made products, it will create $20 bn benefit in trade deficit. But still willy-nilly it will create $100 billion or thereabouts of output loss which is a significant amount for a developing country like India. There are a lot of things that the government should work on immediately to revive the economy.

First, is to cover on FDI, if the Indian government can encash on getting capital from foreign firms leaving China and convince them to invest in India, can boost the domestic savings and growth can be back on track in upcoming months. Second, is to provide Fiscal Stimulus to industries which will require grant aid and subsidies to revive their business and give employment to people in distress. Last, one is the Monetary Stimulus which will require a reduction in interest rates so that business can be flooded with liquidity and cash capital problem can be solved. Though it will no be a hunky-dory for the government to revive the economy but still if these three major steps are implemented properly will help to at least repair and restart the economy on a positive note after the lockdown is over.

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