- The low demand in the market leads to unfavourable liquidity crush in Economy. Discuss?
Context:
- The analysis of post-COVID-19 relief and recovery package announced by the government.
Major concern:
- RBI and Government’s announcements at their own level,
- Main problem is down-turned economic activities with no demand.
Insufficient resource allocation:
- Due to the Pandemic the economic and social gap has widen whereas the packages has announced by the government provide little not sufficient.
- Estimates by economists place the additional fiscal allocation implicit in the proposals at around 1% of the GDP as against the 10% claimed by the government
Dependency on liquidity measures:
- The relief-cum-stimulus package relies heavily on measures aimed at addressing the liquidity issue.
- Primary need is to get the RBI and other public financial institutions infuse liquidity and increase lending by the financial system to address the liquidity problem.
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- The liquidity in economy refers to ease of access to cash.
- The financial intermediaries enlisted with the task of transmitting liquidity are the banks, with NBFCs constituting the lower tier.
- In a point this approach seems one-dimensional approach rather is should be the multi-dimensional approach required at the moment.
Financial measures/steps:
Targeted long term repo operations by RBI:
- The ‘targeted’ long term repo operations (TLTROs) has launched by RBI, it allows banks to access liquidity at the repo rate to lend to specified clients and the repo or policy interest rate has been cut by more than a percentage point to 4%,
- The TLTROs call for investment of the cheaper capital in higher quality investment grade corporate bonds, commercial paper, and non-convertible debentures,
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- The easy funding allow big businesses to access cheap capital to substitute for past high-cost debt or finance ongoing projects without proportionate benefits for the smaller businesses.
- The new investment could be very little as expected through the package.
- The next round of TLTROs was aimed at easing the liquidity crunch in the NBFCs,
- It’s very difficult to The NBFCs to find and roll over the short-term debt they had incurred to finance longer term projects, including lending to small and medium businesses, housing and real estate,
- The measure announced failed to incentivize the banks into lending to the NBFCs, because of lack of confidence in the NBFCs’ financial viability.
The pandemic COVID-19 Package Measures:
Liquidity measures:
- RBI’s efforts on building initial liquidity infusion effort, the COVID-19 package identified more intermediaries (e.g. the Small Industries Development Bank of India, the NABARD, and the National Housing Bank) that could refinance lending by the banks to different sections, with targeted lending amounts.
- The government has offered partial or full credit guarantees in case of defaults to incentivize the banks and other intermediaries into lending to small borrowers.
- The government also sought to persuade the RBI to lend directly to NBFCs against their paper.
Limitations:
- In one point of view the package would not work during this crisis,
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- Because the measures may not lead to new investment or any additional investment.
- The compression of demand resulting from the loss of employment and incomes would be considerable, firms has faced sluggish demand, are unlikely to meet past and current payments commitments and help the revival effort,
The Fiscal conservative policy of government:
- The administration wants to focus on maintaining healthy fiscal numbers.
- The sharp collapse in revenue collection against the fiscally conservative government’s spending
- The government has been reluctant with respect to even the contingent liabilities that do not immediately affect the fiscal deficit.
The Disposable income:
- To help increase the disposable income of different sections several measures has announced.
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- Advance access to savings like provident fund contributions, lower tax deduction at source, reduced provident fund contributions and moratoriums on debt service payments are some of the announced measures.
- These measures are expected to provide access to cash inflows and reduce cash outflows and induce agents to meet overdue payments or spend to enhance the incomes of others.
- These measures are marginal in scope and only temporarily help increase the disposable income.
The Sustainability:
- These measures only envisage a supply side push from the monetary policy initiatives.
- At present, the liquidity push would only culminate in eventual default, as borrowers use the debt to just stay afloat in the absence of new revenues. The measures are only likely to intensify the crisis, rather than resolve it.
Way forward:
- The need is higher government support in the form of new and additional transfers to people in cash and kind, and measures such as wage subsidies, equity support and spending on employment programmes.
- The stated measures would require debt financed spending by the government, with borrowing at low interest rates from the central bank or a “monetisation” of the deficit.
Short notes:
Context:
- Analysis of post-COVID-19 relief and recovery
Major concern:
- RBI and government’s announcements
- Down-turned economic activities
Insufficient resource allocation:
- Due to COVID-19 Socio-Economic crisis has raised with insufficient government’s spending,
- Estimated allocations of government
Dependency on liquidity measures:
- The relief package’s dependence on liquidity issue,
- Main aim to infuse liquidity and increase financial lending by finance system,
- Liquidity is as access to cash need to spread through lower tiers,
- But it should be multi-dimentional,
Financial measures/steps:
Targeted long term repo operations by RBI:
- Its aim to allow banks to access liquidity at the repo rate to lend
- Call for investment in cheaper capital with higher grade
- Easy funding boost economic activity
- Second phase with the specified aims
- Inability of NBFCs
Limitations:
- Negative aspects of working of packages
- No new investment
- Less demand resulting no economic gains
The Fiscal conservative policy of government:
- Administration’s policy to balance fiscal numbers
- Sharp collapse in revenue collection despite government’s spending
- Steps and situation at present to balance fiscal deficit
The Disposable income:
- Government’s steps and advanced measures
- Matter of inflow and overflow
- Insufficient steps
The Sustainability:
- The measures are one side supply not holistic
- Need to push liquidity and generate new investment
Way forward:
- Need is higher government support
- Government and finance system should be more eco-friendly
- The present economic conditions are an opportunity. Discuss in the context of India?
Context:
- The current Vice Chairman of the NITI Aayog argues in favour of the economic stimulus package.
Data:
- The package is a well-balanced and bold package that will help revive economic activity in India stated by the author.
Problems of a developing economy:
- According to the author the developed countries, like the U.S. bestowed with unlimited resources, have the luxury to issue debt without any thought of its consequences on their macroeconomic balances.
- India’s quite restricted freedom cognisant of its constraints and compulsions, the government has come up with its stimulus package.
The bold structural reforms:
- The announced measures aim to see and convert this crisis into an opportunity by implementing bold structural reforms, which are pending.
The Substantial amount:
- The size of the stimulus being around 10% of the GDP compares favourably with packages announced by other emerging economies.
Lifting demand and supply:
- The stimulus package effectively addresses both the supply and demand side of the economy as against concerns expressed by some sections, of the package being heavily focussed on reviving only supply.
Demand generator motors:
- Several measures have considered to lift the sagging demand in the economy.
- Increasing the cash in hand of consumers is the sole means for reversing the declining demand in the economy,
- The additional credit lines provided to micro, small and medium enterprises or to street vendors or to farmers (additional credit of Rs. 2 trillion) will contribute to the strengthening of aggregate demand in the economy.
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- The total effective demand is made up of demand for consumption, investment and intermediate goods.
- Measures announced for ramping up consumption demand directly include:
- Rs.1.73 lakh crore for improving the incomes and welfare of the most vulnerable, including the 20 crore female Jan Dhan account holders who will be receiving money directly into their bank accounts.
- The reduction of TDS and TCS by 25% would lead to Rs. 50,000 crore additional incomes in the hands of the people.
- Rs.40,000 crore additional allocation for MNREGA will provide jobs to the migrant labourers returning to their villages from metros and cities.
- These measures will trigger demand, that can trigger recovery in economic activity.
Supply chain stabilization:
- The package has guaranteed the survival of existing production capacities and laid strong grounds for attracting fresh investment to bolster growth.
Agriculture:
- While announcing the lockdown the government declared agriculture and all related activities as essential services. This permitted the successful harvesting and efficient procurement of the critical Rabi crop and the procurement operations also pumped in Rs. 78,000 crore into the crucial sector.
- The steps aimed at aiding the farmers will help ensure the nation’s food security.
- Indian farmers will get the much-needed freedom, flexibility and financial strength to propel India’s economic recovery in the post-COVID-19 period.
Addressing liquidity crunch:
- The governmental measures will help prevent the liquidity crunch from converting to insolvencies and bankruptcies.
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- Moratorium measures announced for businesses for their debt servicing obligations to commercial banks.
- Additional credit line of Rs.3 trillion has been given to MSMEs without any fresh collateral.
- New equity fund for MSMEs via the Rs. 50,000 crore fund of funds.
- Rs.90,000 crore credit package has been extended to state electricity utilities to enable them to clear their dues to private sector power producers.
Higher self-reliance:
- The measures notably could help to improve the ecosystem for private producers and investors, in agriculture and manufacturing.
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- The liberalization of regulations like the Essential Commodities Act, 1955 and liberalisation in the defence production sector will help India achieve higher self-reliance in this strategic sector and also emerge as an exporter.
- The opening up of business opportunity to the private businesses via the Public Sector Enterprise Policy will help revive investment sentiments.
- The stimulus package will help the Indian firms operate in an ecosystem that will help them become ‘Glocal’, thereby helping Indian brands command a larger share in the global markets and participate successfully in global value chains.
Short Notes
Context:
The positive aspects of government’s relief package related views by the government official,
Data:
- A well-balanced and bold package to economy
Problems of a developing economy:
- As a developing economy depth study and policies can work, comparison cannot be the solution
- Restricted freedom and package
The bold structural reforms:
- To see present situation as an opportunity
The Substantial amount:
- Comparing with developing economy the package is favourable
Lifting demand and supply:
- Package can address supply and demand
Demand generator motors:
- Several steps has taken
- Only cash transfer cannot be the solution
- Additional credit increase demand
- Announcements related to consumption have several measures
- The financial help by the government
Supply chain stabilization:
- Fevourable measures to boost the growth
Agriculture:
- Under essential services,
- Steps to help farmers
- Positive side of farmers
Addressing liquidity crunch:
- Government’s measure to help and prevent this crunch
- Announcement of all the financial helps
Higher self-reliance:
- All the measures are more helpful to renew economic activities
- The liberalization of regulations like the Essential Commodities Act, 1955 and liberalisation in the defence production sector to get self reliance,
- Opining of business and private work force can revive investment
- Package help Indian firms as well.
- The technology has seen as major threat due the geopolitics. Define it in the context of the current scenario of the world?
Context:
- It is analyse the trends in the domain of technology and data, and evaluate the scenario in a post-COVID phase.
Importance of technology and data:
- To improve economic activities, social development and treat deadly diseases, national governments, policymakers and healthcare researchers are using technology.
Emerging trends:
Interdependence between technology and geopolitics:
- Issues relating to technologies such as biotechnology, genetic engineering and information technology will have a long-term impact on geopolitics.
- Technology and data are becoming inherently geopolitical.
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- Proper data about COVID-19 outbreak were not shared on time resulted so much anger towards the WHO and China.
- The nature of technology and data has placed tech giants such as Google, Facebook and Amazon in a commanding position, their global reach, governments are becoming increasingly dependent on them.
- Tech giants are taking a leading role in geopolitics, at times playing on their own and sometimes as proxies of nation states to influence policymaking and national regulations.
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- The U.S.-China trade war, the position of governments on Huawei 5G technology, and Facebook’s attempt to implement internet.org are a few examples
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The idea of privacy a concern of changes:
- The crisis has brought certain changes in perception on issues like privacy.
- During crisis, people across the globe have accepted the idea of their live locations being traced and shared with governments.
- In India, more than 90 million people have downloaded Aarogya Setu despite concerns raised with respect to the right to privacy.
Major Concerns:
The growing restrictions on data:
- Restrictions on the flow of data have increased notably from recent year.
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- World over, data protection laws, requirements of data localisation, laws related to weakening of encryption keys and data retention requirements are increasing.
Lack of proper framework:
- The stated frameworks on data are not interoperable between different jurisdictions and only focus on protection of personal data and privacy and give little thought to the broader impact of data on mobility and social aspects.
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- Data protection frameworks like the General Data Protection Regulation of the EU and the CLOUD Act of the U.S. are aimed at putting users in control of their data. But they have issues relating to data localisation, cross-border flow of information and issue of data sharing.
- The global body, UN has also not successful but it has power play crucial role.
Way Ahead:
Sharing data:
- In the post-COVID world, countries are obliged to share data at larger scale on the interest of humanity.
- The unprecedented amount of data being collected by tech giants need to be used towards the welfare of society.
Privacy concerns and aspects:
- The present human rights framework cannot be extrapolated to human rights in the digital and biological domain.
- The current concept of privacy may require significant change.
- There is a need to distinguish individual data from large global data sets.
Need for a framework:
- The world at post-COVID-19, the need for digital equity will require frameworks relating to governance of technology and data that look beyond geopolitical considerations.
- With data flow set to become more important over time, with need of government regulations and standard and inter-operable frameworks to govern issues and address risks emerging from these technological innovations.
- The framework must focus on leveraging data to solve problems and ensure consistency, interoperability, privacy and security.
Short notes
Context:
- Analysis and present use of data and technology across the globe
Importance of technology and data:
- To improve economic activities
- Its unexpected reach
Emerging trends:
Interdependence between technology and geopolitics:
- Issues relating to technology
- Data and technology operate under the domain of geopolitics
- Hatred towards WHO and China
- Government’s dependence
- Data collector companies working as proxies to their nation’s
The idea of privacy a concern of changes:
- Change in people’s perspective about privacy
- People’s acceptance to share the privacy and localisation of location
- Acceptance og Aarogya setu app
Major Concerns:
The growing restrictions on data:
- On flow of data
- In search of data
Lack of proper framework:
- No good framework
- Different data framework across the globe
- UN’s failure but can play crucial role
Way Ahead:
Sharing data:
- Worlds cooperative image to share data
- Sharing is for the welfare of society
Privacy concerns and aspects:
- Present human right framework
- Current policy required changes
- Distinguish between individual and collective data
Need for a framework:
- Post-COVID-19 world need equity
- Practical standards needed
- Strong framework should be strengthen.
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