Economy: Dealing with the D word

The economy is likely to see another wave of pent-up demand in the immediate months to come, but the larger question will remain unanswered till later this year.

The second wave of the coronavirus disease is ebbing, a little less than 30% of the eligible population (everyone over the age of 18 years) has received at least one dose of a Covid-vaccine, and business activities (one measure is the Nomura India Business Resumption Index) are almost back to where they were in April before India was overwhelmed by a rush of infections. The index, for instance, is back in the late 80s; 100 indicates a pre-pandemic level of activity.

The government announced more relief and stimulus measures on Tuesday. Much like the previous ones, these are over-indexed on guaranteed credit schemes. (Bloomberg)

Meanwhile, the government announced more relief and stimulus measures on Tuesday. Much like the previous ones, these are over-indexed on guaranteed credit schemes. It isn’t difficult to see why the government prefers these over direct cash transfers, which will have an impact on the fiscal deficit. Not everyone who avails credit through the various schemes the government has announced since last May will default; those who have been really affected by the pandemic will, and for them, the scheme will pretty much function like a cash transfer — except that the impact on the fiscal will be delayed, and hopefully come at a time when the economy is in better shape. Seen thus, the targeted credit schemes, including the one for the tourism sector and tour guides, or that for micro-finance companies, takes on a new meaning.