India needs to opt for income support so that pandemic does not turn into a financial crisis. Elaborate (200 Words)
Refer - The Indian Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 4 years
KEY POINTS
· There are times when policy needs to lean against and times when it has to bend with the wind. This is the time to do the latter. It isn’t that the market has been overly generous towards Brazil.
· On the other hand, if the government brings spending below the cap, the attendant fiscal drag will be substantial. But the central bank can continue to keep interest rates low for longer and strengthen the private sector recovery in 2021 especially as balance sheets will be less damaged than otherwise because of the income support this year.
· And this is where the importance of income support lies. It is not so much that it has helped to support demand this year, but that it has protected, to varying degrees, household and SME balance sheets from the extensive damage the pandemic is likely to leave in its wake.
· Unlike typical EM crises, the pandemic is not an instance of a financial crisis turning into an economic shock because of damaged balance sheets. Instead, it is an economic shock brought on by the failure of the public-health system that can turn into a financial crisis if the damage is extensive.
· In India, the debate over fiscal policy has been too focused on demand management. Income support or other government spending can help only modestly in compensating the collapse in private demand until the link between infection and mobility is broken. That’s a public health problem.
· Economic policy cannot compensate for the weaknesses in the public-health system. But appropriate economic measures now can have a much bigger and long-lasting impact when the pandemic has been brought under control and an economic recovery gets underway in earnest.
· What is needed is ample income support for households and firms now so that the recovery is not hamstrung by excessively damaged balance sheets. Otherwise, the pandemic can easily turn into a financial crisis, delaying the recovery and hurting medium-term growth.
