The locked down due to the COVID-19 pandemic has created huge economic chaos and the worst hit since the Great Depression in the 1930s. This is a crisis like no other, and there is substantial uncertainty about its impact on people’s lives and livelihoods. An economic recession is unavoidable! But what is an economic recession? It is a period in where a given country is witnessing a negative growth for consecutive two quarters. It usually starts with a loss of business or consumer confidence. When the majority of people or businesses in a country suddenly stop spending as much money as they usually do, a downward spiral momentum kicks in.
We are witnessing a pandemic driven economy and Government intervention in financial matters is mandatory! Governments all around the world are looking to restart the damaged economy, all eyes are on the polices and support packages. This calls for the government to take up the responsibility to protect their business and people from economic disruption. Policies are being proposed and implemented to protect in response to the crisis. Governments are announcing financial packages and pumping a significant portion of the GDP into the system. Worst hit sectors include tourism, air travel, hospitality, retail and wholesale trade creating economic uncertainties.
Before jumping into the different policies undertaken by the government, let us understand what economic stimulus is and why it is required. As we all know, stimulus means to increase the activity, economic stimulus is a package to boost the economy. In simple words, this package does the role of pushing the car whose battery is drained. The package is supposed to kick start the economy by creating demand and providing financial support to both consumers and producers. This can be achieved by lowering interest rates, increasing government spending, and reducing taxes.
With the objective of restoring stability, governments announced fiscal stimulus and emergency measures to help the most affected people and businesses. There are a series of possible stimuli available from long to short term. The Indian government announced a 20 lakh crore package almost equal to India’s 10% GDP. This made the package substantial in the world after the financial packages announced by the United States which is 13% of it’s GDP and by Japan which is more than 21% of its GDP.
With a huge amount of stimulus, the government will be able to provide aid to state governments, small businesses, and money for critical supplies. Direct money transfer has also been observed in a few countries which will fix the spending problem during a pandemic. With stimulus being effectively targeted then the prices will be under control. Economic stimulus packages work if they are well designed considering all the loopholes. Recovery is possible only through coordinated action.