Reforms are unlikely to help if the financial sector plumbing is not in order An assessment of Indian government’s economic stimulus package and its impact should begin by posing a basic question: How should it respond to the covid-19 shock?
In our view, the policy response needs to be delivered over multiple phases: Survival phase, growth revival, fixing the financial plumbing and reform kicker.
In the first phase (what the economy is currently enduring), the policy response should focus on addressing the severe cash-flow shock dealt to businesses and individuals due to the sudden stop in activity.
Indeed, the government’s package has attempted to address the survival needs of firms and vulnerable segments of the population.