“INDIA HAS SPACE TO INVEST 3-5 PER CENT OF GDP”

Health, social protection and economic stabilisation measures critical Junaid Ahmad, Country Director, India, World Bank

In 2008, you had a financial shock. The current one is a supply shock. You have to deal with where the supply problem emerges, which is the health sector. When you engage in social distancing, you have to slow down the economy. When you do that, you need to create a bridge through which you provide social protection funds to the vulnerable, and to the small and medium enterprises. Once India begins to move away from the lockdown, economic stimulus should come. Interventions like lines of credit to small and medium enterprises, credit enhancement for businesses, etc. will stabilise the economy.

We're in unchartered territory. The key is to respond to what's happening on the ground. One of the lessons from the 2008 crisis was that as firms shut down, and people were laid off, it took seven to 10 years for people to come back into the labour force. The economy can't afford that. That's why you have to work on health as well as bridging support to stabilise households as well as pockets of the economy. The government has already moved ahead. The RBI’s lines of credit, stabilisation, regulatory forbearance are all enabling stability.

Paul Krugman, the Nobel Prize winner economist, said he's very worried that there's going to be a significant downward trend globally. We are entering into a world of slow growth, and in many places, negative growth. All these interventions are precisely to ensure that this downward trend is arrested, before it can pick it up. It’s hard to predict when we're going to see an end to the health crisis.

The 'state' is back in the picture in a big way. The US is putting in 10 per cent of GDP, and Europe around 5 per cent. India’s debt is not huge and it is in local currency and long term. So, India may have the space to invest 3- 5 per cent of GDP into health, social protection and economic stabilisation measures.