Let me make it very clear in the beginning, I am in favour of PM Modi's step of the first lockdown for a day and then, stringent measures for another 21 days till 14th April 2020. This, I mentioned at the beginning of my blog because some people might find it offensive looking at the heading of the blog. They might ponder about thinking of an economy during a pandemic is sheer nonsense. But, I feel it is equally important to draw our attention in the near future.
The state of the economy post coronavirus will be worse than demonetisation. If we consider the time we will take to have complete control of this disease, it should be around 1.5 months-2 months from this date. I took this time-frame looking at how much time China took. The normalisation phase should begin around 15th May 2020.
The situation will look normal only in the sense that people will be able to move on the roads freely. But the real problem will be of the cash. There will be a liquidity crisis much worse than demonetisation. This is so because during demonetisation people had the money in their bank accounts or cash with them. There was a time-frame given by the government within which they would exchange the old currency. No fear was prevalent in the minds of honest people. Only corrupted people were afraid. But the times will be different now. I know some people might think of comparing apple to apple meaning the two events cannot be compared. However, we can at-least predict and plan well in advance for the future after taking some cues from the past.
Since there is a lock-down in the whole country, the earning members of the family are not able to go to work-place. Assuming, every business-owner heeds to the advice of PM Modi of providing salary to every employee during lock-down. However, I feel that they would pay only for March. For this statement, I am assigning a probability of 0.70. This attitude will cause a chain reaction and affect other sectors of the economy in May. People won't have money in their pockets around 1st May 2020.
While I was writing this blog, CCEA under the leadership of PM Modi decided to provide food-grains at subsidised rates to the people living below the poverty line under the PDS system during the lock-down phase. A populist yet remarkable decision taken by the PM. Another important question is only during the lock-down period. But, once the lock-down period ends, it won't be easy for them to find jobs easily.
On the other end there are people who are living above the poverty line but they are jobless at the moment or might lose the job in the near future. They will find it hard to meet their ends. Since such class of people have a decent standard of living which is very difficult to forego. They have compulsory expenses which they have to pay such as government taxes, rent of their shops and their houses, EMIs of bank loans.
While I was writing this blog, CCEA under the leadership of PM Modi decided to provide food-grains at subsidised rates to the people living below the poverty line under the PDS system during the lock-down phase. A populist yet remarkable decision taken by the PM. Another important question is only during the lock-down period. But, once the lock-down period ends, it won't be easy for them to find jobs easily.
On the other end there are people who are living above the poverty line but they are jobless at the moment or might lose the job in the near future. They will find it hard to meet their ends. Since such class of people have a decent standard of living which is very difficult to forego. They have compulsory expenses which they have to pay such as government taxes, rent of their shops and their houses, EMIs of bank loans.
Once this spiral of losing job starts, it will have its ripple effects. For instance, earning member of a middle-class family loses his job, all the discretionary expenses will be foregone by him. Such expenses include stop paying the rent of a cable connection, consuming less amount of milk, stop sending their kids to tuition, reducing the expenses on grocery items, telling no to maid etc.
As we all know, the economy functions in two ways. Either by spending or saving. There is no question of saving since savings are done when there is a surplus left. Expenses will be done by the people only when they have income.
My suggestions for PM Modi would be to reduce the pain of people post coronavirus:
1. Exempt the people from paying all kinds of taxes about the lock-down months.
2. If point number one doesn't make any sense, then such taxes should be collected in the form of EMIs from the citizens.
As we all know, the economy functions in two ways. Either by spending or saving. There is no question of saving since savings are done when there is a surplus left. Expenses will be done by the people only when they have income.
My suggestions for PM Modi would be to reduce the pain of people post coronavirus:
1. Exempt the people from paying all kinds of taxes about the lock-down months.
2. If point number one doesn't make any sense, then such taxes should be collected in the form of EMIs from the citizens.
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