|| Comparing India and Brazil on GDP fall and fiscal response ||
Now that most of us are over the initial shock of the April-June quarter GDP contraction, it may be time to ponder over a couple of things. First, it is possible that with unlocking, the worst is over. Indeed, a bunch of indicators ranging from diesel consumption to highway toll collections are looking a lot better than they did in April-May. But how much comfort should we draw from this?
Second, going by the International Monetary Fund (IMF), India saw the sharpest fall in this quarter among G20 economies if a comparable non-annualised quarter-on-quarter growth metric is used. Should we dismiss this as the inevitable, but transitory, consequence of a super stringent clampdown on activity that India imposed somewhat earlier than other countries?
Alternatively, is it the proverbial wake-up call that should push us to rethink our strategies for revival? Specifically, is there something that we can learn from the policy mix of our peers?
No doubt unlocking has paid off, in terms of renewed activity. Japanese investment bank Nomuras Business Resumption Index shows that, save for a plateau in July, business activity has been steadily picking up since early May. This illustrates that the lockdown did not disrupt supply chains or labour supply so severely that the economy could not get back on its feet on unshackling. While we averted this worst case, there may still be a lot to worry about.
The rise in business activity could partly be a response to the pent-up demand that built up during the lockdown. As this declines, the bounce in the economy that came with unlocking may dissipate. Output is simply the flip side of income. If we trust the GDP numbers for Q1, it is telling us that incomes in the economy fell by 24%. If demand depends on income, isnt it likely that the demand contraction that resulted from this precipitous income fall will overshadow the boost from pentup demand provided? Would this not trigger a vicious cycle of falling sales, lower incomes and lower employment, and, sadly, a further fall in demand?
https://m.economictimes.com/news/economy/policy/view-dont-wait-for-an-opportune-moment-loosen-the-purse-strings-now/amp_articleshow/78094072.cms
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|| Comparing India and Brazil on GDP fall and fiscal response || Now that most of us are over the initial shock of the April-June quarter GDP contraction, it may be time to ponder over a couple of things. First, it is possible that with unlocking, the worst is over. Indeed, a bunch of indicators ranging from diesel consumption to highway toll collections are looking a lot better than they did in April-May. But how much comfort should we draw from this? Second, going by the International Monetary Fund (IMF), India saw the sharpest fall in this quarter among G20 economies if a comparable non-annualised quarter-on-quarter growth metric is used. Should we dismiss this as the inevitable, but transitory, consequence of a super stringent clampdown on activity that India imposed somewhat earlier than other countries? Alternatively, is it the proverbial wake-up call that should push us to rethink our strategies for revival? Specifically, is there something that we can learn from the policy mix of our peers? No doubt unlocking has paid off, in terms of renewed activity. Japanese investment bank Nomuras Business Resumption Index shows that, save for a plateau in July, business activity has been steadily picking up since early May. This illustrates that the lockdown did not disrupt supply chains or labour supply so severely that the economy could not get back on its feet on unshackling. While we averted this worst case, there may still be a lot to worry about. The rise in business activity could partly be a response to the pent-up demand that built up during the lockdown. As this declines, the bounce in the economy that came with unlocking may dissipate. Output is simply the flip side of income. If we trust the GDP numbers for Q1, it is telling us that incomes in the economy fell by 24%. If demand depends on income, isnt it likely that the demand contraction that resulted from this precipitous income fall will overshadow the boost from pentup demand provided? Would this not trigger a vicious cycle of falling sales, lower incomes and lower employment, and, sadly, a further fall in demand? https://m.economictimes.com/news/economy/policy/view-dont-wait-for-an-opportune-moment-loosen-the-purse-strings-now/amp_articleshow/78094072.cms