Economic Health & Printing of INR

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.

Sanidhya Pastore (सानिध्य पस्तोर)