Simi Mehta, Anshula Mehta
“Extraordinary times require extraordinary macro policy responses. We are facing a dual crisis – the public health crisis and the macroeconomic crisis. The sustainability of the economic recovery will depend on the monetary and fiscal policy measures. As Shaktikanta Das pointed out, the policymakers will do “whatever it takes to fix the crisis”. This is a dual crisis —the public health crisis and the macroeconomic crisis.” said Dr. Lekha Chakraborty.
She was speaking in a webinar on “Monetary and Fiscal Policy Responses to the Pandemic and the State of Gender Inequality” organized by Gender Impact Studies Center at IMPRI Impact and Policy Research Institute as part of the series, The State of the Gender Equality – #GenderGaps.
The grave effect of the pandemic is observed in the loss of nine trillion dollars in the cumulative global GDP. “The pandemic economics of governments and central banks is twofold. One is the focus on measures that relate to instantaneous economic firefighting.
The second is the medium-term policy imperatives”, she said. The RBI has responded to the pandemic by lowering interest rates to 4 percent and providing liquidity infusion into the economy. From a gender perspective, lowering the interest rate is crucial for women entrepreneurs. However, analyzing the regional differences in the “access to credit” is also as crucial as the low “cost of credit”.
In the context of India, she highlighted the significance of integrating care economy into the pandemic economic packages. She also highlighted the “shadow pandemic” of increasing domestic violence during the lockdown period. The mental health concerns are mounting, and the government needs to give emphasis to these issues, she added.
She believes, government as an employer of last resort policies – for instance, MGNREGA policies – needs to be strengthened. In the policy narratives of “participation income” (where women participate in the economic activity and earn an income) versus “basic income” (where cash transfers are provided irrespective of employed or not), a judicious mix of both policies needs to be given emphasis to pre-empt a prolonged livelihood crisis.
In the economic pandemic packages, the focus should be given to social infrastructure – particularly education and health – along with other crucial components on social security measures, food security and employment policies. The widening digital divide affects the education outcome, especially for girls. The lack of access to health infrastructure and vaccination can affect the health outcome. So it is crucial to focus on social infrastructure policies.
An equally alarming area of concern is unemployment – which needs to be tackled by applying a “gender lens” – by accounting for the unpaid care economy. In the life versus livelihood framework, an emergency pandemic package should focus on tackling both economic recovery and the humanitarian crisis.
The recent data suggests that the economy is recovering. However, to make this economic recovery process sustainable, we need apt fiscal and monetary policies. The credit deployment statistics published by RBI showed a mixed outcome. The lack of demand is evident. This has evident gender dimensions as well. The decision by the monetary policy committee (MPC) to maintain the repo rate at 4 percent is welcome.
However, the monetary policy transmission mechanism is crucial to get the intended outcome. The RBI is “nudging” the commercial banks to lend more. However, in spite of this nudging process, the commercial banks were parking funds with RBI with reverse repo rate. The monetary policy is partially effective on growth outcomes, therefore the “fiscal dominance” is crucial to create stimulus in the economy.
The financing pattern of fiscal deficit is equally important as the “levels” of deficit. There are three major sources to finance the fiscal deficit: print currency (that is, monetization of deficit), bond financing, and external financing. However, each of these modes of financing has specific macroeconomic consequences. For instance, excessive monetization of deficit can create inflationary pressures in the economy. Bond financing can lead to “crowding out” of private investment. The external financing of deficit decisions can face pressures from financial oligarchy. However, Dr. Chakraborty says that public debt is not bad in times of pandemic emergency if it can be substantiated by strengthening public investment or reducing the output gap.
To attain fiscal consolidation, tax buoyancy can be an effective path. But fiscal consolidation through expenditure compression and downsizing the government can be detrimental. It can hinder capital infrastructure formation and human capital formation. In the times of pandemic, the fiscal austerity measures can also lead to a humanitarian crisis. The policies should focus on the “Leave No One Behind” paradigm. Focusing on the “economic growth” paradigm without focusing on human development can be detrimental as this pandemic is primarily a humanitarian crisis. This is primarily a human tragedy.
The budget credibility is crucial. Fiscal marksmanship of economic relief packages is perfect if there is no significant deviation in “what you promised or announced” (Budget Estimates) and your actual spending.
Along with the instantaneous firefighting packages, using this crisis as an opportunity, the government has announced certain “structural reforms” too- for instance, labour reforms and power sector reforms. The policy coordination – fiscal and monetary policies – is significant for sustainable economic growth recovery.
Others who attended the webinar were Dr. Simi Mehta, CEO, IMPRI; Ms. Gby Atee, Researcher, IMPRI; Prof Govind Kelkar, Executive Director, Gendev Centre for Research and Innovation, Gurugram.
Acknowledgment: Kashish Gupta is a research intern at IMPRI.
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Picture Courtesy: The Economist