Economy: Dealing with the D word

The second wave of the coronavirus disease is ebbing, a little less than 30% of the eligible population (everyone over 18 years) has received at least one dose of a Covid-19-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.

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 schemes that the has been announced since last May will default; those who have been affected by the pandemic will, and for them, the scheme will 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, takes on a new meaning.

Will this be enough to spur demand, which was already declining before the pandemic hit? The second wave prevented us from understanding whether the sharp increase in demand seen after the first wave was purely on account of pent-up demand or whether there was the beginning of a fundamental recovery. 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.