By Prof R K Panda
The Indian Government is now fighting two battles – to combat the spread of corona epidemic and to rescue the declining Indian Economy. Already a lot of damages have been done in both the terms.
Not only the number of persons, victim to the Covid-19, is increasing day by day but also the economy has been witnessing rapid decline in output, employment and income in almost all sectors over the last one and a half years. The rate declining has become faster in recent days because of lockdown.
While a number of steps have been taken by the Governments (both central and states) to arrest the spread of the epidemic and accelerate the growth of the economy through increase in output and employment, the most recent (17.4.2020) initiative taken by the RBI to revive the economic growth needs a critical comment.
No doubt the yesterday’s changes, in the key policy rates of RBI (reduction in its Reverse Repo Rate), is very spectacular as it has emphatically dissuaded the commercial banks to keep their surplus money with RBI. Instead the RBI has insisted the banks to lend increasingly to the eligible customers. However, there is a good old saying in Economics Literature: ‘You can drag the horse to the pool, but no amount of drinking the horse is possible if he is not thirsty.’
We see that the commercial banks do have sufficient liquidity with them but they avoid the risk of lending at this hour. Instead they prefer to park their surplus money with RBI with lower rate of interest. As such the efforts of RBI to revive the economy through injection of more liquidity into the economy may not be very much successful at this hour when there is lockdown declared by the Government and thus complete ban on people’s movement and the industries as well as businesses stand almost closed.
In this peculiar situation, the Governments – both Central and States have to play a pro-active role. We have to revive the consumption demand in the economy as it plays a big role in accelerating GDP growth in the economy. In this context, the governments have to identify areas and activities to be taken up and thus engage the stranded daily labourers, migrant workers into different economic activities, raise their purchasing power.
It is good to note that to tide over the difficulties of shortage of supply of essential commodities the Government has given relaxation of lockdown to sectors like agriculture, fishery, horticulture etc. However, since the present problem of spread of the epidemic is mostly confined to urban areas and the urban daily workers are badly hit both by the disease as well as lack of food, there is urgency in countering the twin problems through specific programmes.
The RBI’s initiative may not yield result if Governments’ efforts are not forthcoming.
(The write is a former Professor of Economics at Utkal University, Bhubaneswar)
