The rapid spread of COVID-19 across continents has surprised health professionals and policy makers, throwing major markets into a tailspin. Many analysts already foresee signs of a global recession. In such a scenario, here are five ways government can safeguard its economy.
Prepare for a health emergency: As former RBI governor Raghuram Rajan recently said, countries need to prioritise fighting COVID-19 over stimulus packages. While the outbreak so far has not caused any casualty in India, with over 1.3 billion population, it must ready for the worst, lest it is caught napping.
Ready a fiscal contingency plan: While the government so far has been fiscally conservative even in its latest budget, in case COVID-19 drives the global economy into a recession, it can no longer focus merely on keeping fiscal deficit under check. A robust fiscal plan to revive the economy should be kept ready.
Use the opportunity to push structural reforms: COVID-19 in all likelihood will turn into a black swan event for the global economy. Coming close on the heels of US-China trade war, it could further turn foreign investors away from China. India should truly be making itself an easier place to do business including measures like simplifying the GST structure.
Push domestic demand: As economist Jahangir Aziz said in an interview with Mint, government may have to reorient its policies to boost domestic demand at a time global demand is set to remain tepid for a long period of time. Economist Rathin Roy has also pointed out earlier that producing for a larger section of the Indian society at affordable prices instead of only for the top 100 million people could make growth broad-based.
Keeping monetary policy flexible: The Federal Reserve earlier this month cut its policy rate by 50 basis points citing “evolving risks to economic activity" posed by the COVID-19 outbreak. The Reserve Bank of India should also be ready to use all the tools at its disposal to provide financial stability while preserving economic growth.