As we also know that figures of GDP growth for the FY-2020-21 have been released by the RBI and they are published as headlines of the newspapers. It’s not just a numeric representation of GDP Growth, but it is trying to convey the health of the Indian Economy. Negative growth or lower positive GDP growth was presumed by various economists. But what makes the figure more haunting is its comparison with the respective figure of FY 2019-20. We all know what led to this negative growth – The Covid 19 virus. The devastations that Covid-19 have caused are irrevocable and will have deep impressions on the economy. We should be worried about the health of the Indian economy but we should not argue about the figures as they are based on the formulas comprising of various factors.
Economies work
based on a simple concept,i.e., Demand & Supply. To create this supply and
fulfill the demand we need businesses that can manufacture products or provide
services to the end-user. This can be done with the help of Land, Labour,
Capital & Entrepreneurship. These four components are termed factors of
production. But all these factors of production need “Finance” so that they can
be utilized effectively & efficiently in the creation of supply and
fulfillment of demand. For Example – A co. manufacturing mango juice creates
supply and labour working in the same factory who purchases this product from
the market creates the demand. This demand & supply cycle is what we call
the “Lifeline of economic growth”. The covid-19 virus has disturbed this cycle
which has resulted in loss of income, unemployment, lower tax collection, lower
investment, and negative GDP growth on the macro level. One of the major
factors of this negative growth is “Lower Demand” or “Absence of Demand”.
Why I
have discussed this is because few eminent economists have suggested the Indian
Government to Print INR. Their suggestion is government should print currency
and that should be utilized by the government in providing direct cash benefits
to the needy people and to be invested in Infrastructural projects so that
demand can be created and the wheel of the demand-supply cycle can move at a
fast pace leading to economic growth and stability. The majority of us may be
convinced with this concept but there are negative repercussions of this. First,
If INR is printed and given to the people in any form either as direct cash
benefit or under any welfare scheme this will create demand and if supply
remains constant this will lead to Inflation which again will be hampering
economic growth. Second, we all know the value of INR is already very low as
compared to US Dollar and more money will lead to more decline in the value of
INR. Third, India is already facing a Fiscal Deficit, as government revenue is
less as compared to its expenditure, this step will lead to an increase in the
fiscal deficit. Fourth, there are chances that Foreign Investors may lose
confidence and start withdrawing their investment. There are other demerits
also. But this doesn’t mean there are no merits. First, with the help of newly
printed currency, Demand will be created that will lead to more production and
more employment, and more money circulating in the economy. Second, with
surplus or adequate funds businesses will be able to repay their dues to banks
and NBFCs this will result in fewer numbers of NPAs as the banking sector is
already burdened with bad loans and NPA. Third, once the demand cycle starts
functioning properly, foreign investors will again start investing. Fourth,
with the increase, government infrastructural investment private players will
also invest leading to more employment, more income. Lat but not the least,
more income or profits means more tax revenue to the government which again can
be utilized to push economic growth.
The
impact of Covid-19 has raised uncertainties and increased fear in the people as
well as average business houses as these are also run by human beings. People
have started saving money and are spending only on necessities they are neither
discussing nor expecting to invest their money in commodities other than
necessities. Large initiatives should be taken by the government to build up
confidence in each & every individual that their needs will be taken care
of by the government. All kinds of assistance will be provided by the
government machinery either fiscal or otherwise. This will boost the confidence
of investors who will invest, which will generate employment, which will
increase income, and ultimately people will have a better standard of living.
This Demand-Supply Economic Cycle is like Blood Line of Economy, as a single
Clotting will result in thousands of lacs of loss to the economy. The
government may or may not adopt this measure but steps must be taken on a large
scale so that the health of the Indian Economy is revived.
