In the previous week, the former Prime Minister of India, Dr. Manmohan Singh, also known as the architect of economic reforms programme of India, had put forth ‘three steps’ that he thinks that the government should take up in order to stem the economic crisis of India and reinstate normalcy in the years to come.
‘Ensuring that people’s livelihoods are protected and they have spending power through significant direct cash assistance’— is the first step that the government should take up.
Secondly, ‘it should make adequate capital available for businesses through government-backed credit guarantee programmes’.
And lastly, ‘it should fix the financial sector through institutional autonomy and processes’.
Even before the pandemic breakout, the Indian economy had been struggling through a slowdown—in the year 2019-20, GDP marked its slowest move in nearly a decade, with a rise to 4.2%. The lockdown in India initially started in March, to prevent the spread of the coronavirus, which “at that stage was an inevitable choice”. But what added to the problem and took millions of people in pain and crisis was that the lockdown was “hastily executed”. “The suddenness of the announcement and the stringency of the lockdown were thoughtless and insensitive”, said Dr. Manmohan Singh.
Even after Narendra Modi’s $266 billion stimulus package, that included a number of liquidity measures and various reforms to heal the economy, with tax receipts suddenly falling at a drastic rate, it is still dubious as to how the government will be able to get money in order to fund direct transfers and to supply more capital to banks and credits to businesses.
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As a solution, Dr. Singh suggested borrowing—”higher borrowing is inevitable”, said he. According to him, in order to save and protect lives and enhance economic growth, it is fair enough to borrow, even if that increases India’s debt to GDP ratio. “We must not be shy of borrowing but we must be prudent on how we use that borrowing”, he added.
In order to tackle the ongoing crisis, a lot of countries had decided to print money to fund government spending. The same had been suggested to India too, by some renowned economists. In the view of Manmohan Singh, the printing of money is all fine with developed countries, but for developing countries like India, unrestrained printing of money can have major impacts on trade, currency, and imported inflation. Dr. Singh does not really suggest not printing money, but he advises that it should be the last treasure when all other measures will come to a halt.
It is still in doubt that what the actual impact of the pandemic on the Indian economy is and how long the country will take to recover itself from the damage but suggestions from such a prominent personality like Dr. Manmohan Singh can do a lot if followed.
According to Dr. Singh, the ongoing economic slowdown is caused by a “humanitarian crisis”—an epidemic that had injected fear and uncertainty in all and therefore it is important to read the emotions and sentiments of the whole Indian society and not just focus on “economic numbers and methods”.
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