India planning fiscal, monetary measures against impact

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India is working on a set of policy measures to combat the economic impact of the fast-spreading coronavirus and that may include some cash transfers to workers in the informal sector, the country’s top economic advisor said. 

The virus, which causes a respiratory disease known as COVID-19, has infected more than 207,800 people and killed over 8,600 people globally, according to the World Health Organization. India has reported at least 151 cases, out of which 14 have recovered and three died, according to the health ministry. 

Health officials worldwide have urged countries to step up measures that can keep the daily number of reported cases at a level manageable for health-care systems, a concept known as “flattening the curve.”

Countries like Italy, where the infection is spreading rapidly, are struggling to keep up and medical care facilities are being stretched to their limits. But many of those required actions, such as shutting down public places like shopping malls or banning tourists, are predicted to have an adverse economic impact — in service sectors like retail, leisure, and travel. 

Economic trade-off

“There is actually an essential trade-off between flattening the curve, from the health policy perspective, and the consequent impact of that on the economy,” Krishnamurthy Subramanian, chief economic advisor to the Indian government, told CNBC’s Tanvir Gill. 

He explained that India anticipates possible disruptions to the supply chain and a decrease in demand that could, in turn, affect businesses. As such, the government is working on both fiscal and monetary measures. 

“On the fiscal side, (to) try and see if there could be some cash transfers that would be done,” Subramanian said. “India has a very large informal sector and the informal sector may be particularly impacted by the lockdown because there are people who don’t necessarily have a permanent job.” 

Some experts have estimated that India’s informal sectors account for roughly 94% of total employment in the country and contribute about 45% of output.

Chief Economic Adviser Krishnamurthy Subramanian.

Mohd Zakir | Hindustan Times | Getty Images

Subramanian said the government is also thinking about the banking sector, which is slowly recovering from a major bad debt crisis; New Delhi wants to ensure there is no additional impact of the coronavirus on India’s lenders due to a potential slowdown in demand. The Reserve Bank of India this week introduced measures to pump more rupee liquidity into the banking system. What could work in India’s favor is the fact that oil prices have plummeted recently, which is expected to lessen the country’s oil import bill. 

Tackling the outbreak

Last week India temporarily suspended almost all travel visas, restricted visa-free travel for foreigners of Indian origin, and closed its land border with Myanmar.

Though India’s first cases of COVID-19 were detected in January, stringent measures including self-isolation orders, travel restrictions and screenings at airports initially kept India’s reported numbers low until the number of cases outside China imploded.  

Still, Subramanian said that tests found there is still no evidence of community spread of the virus in India.

“I would continue to remain cautious, but at the same time, what I would say is that the number of cases so far has only been growing linearly,” he said. “Based on the data, the cases seem to be in control, but, that said, it is important for us to continue responding to the evolving situation.” 

The impact of COVID-19 on India’s economy is still relatively mild. But even before the outbreak, quarterly expansion rates were already off previous levels that made it one of the fastest-growing major economies due to other factors. 

Subramanian contended that the growth rate could take a hit in the first three months of this year — which is also India’s fourth-quarter for the 2020 fiscal year — but he also said that the magnitude is hard to predict. Though economic indicators have shown signs of improvement in recent months, March is likely to be a drag on the quarter due to the outbreak.

“Q4 growth, actually, may be lower than 5% because of the impact of one month,” Subramanian said, adding that reports indicated the adverse impact could continue into April, when India begins its new fiscal year. 

Economists have warned that if India faces an out-of-control epidemic like Italy, for example, then the impact is likely to be more severe. 

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