Covid-19 has brought upon a crisis that none in this generation has seen, surpassing the Great Depression of 1930s and the 2008 global financial crisis. As is one’s wont, most, if not all countries, dismissed it as something that could not go beyond China when the pandemic erupted in that country in December.
The reality turned out be very different and a very harsh one. Now with their backs to the wall, governments and their banking regulators have come out firing, the degree of response varying because of their own capacity and their individual assessment of the risks. At the top of the heap had to be the world’s largest economy, the US, of course the dollar’s status as the de facto reserve currency of the world and the ultimate freedom enjoyed by its Federal Reserve to print as much currency as it wants giving it all the heft.
The Trump government’s $2 trillion relief package extends to each American earning up to $75,000 annual income a one-time direct payment of maximum $1,200 with an additional dole of $500 for every child, a first of its kind social benefit in the Mecca of capitalism.
Americans earning more than $75,000 would also get money, provided they meet certain criteria. The exercise, albeit only a one-off, tantamounts to being a Universal Basic Income and is worth lauding for the speed it is sought to be delivered with and for recognizing that “We are all in it together”.
The US’s response came soon after the 15 March Federal Reserve move to cut interest rates to near zero. The move by US Federal Reserve spurred central banks into either cutting rates by 50 to 100 basis points or announcing liquidity support measures the very next day. The UK government come out with a 330 million pound sterling stimulus, packaged mostly as state-backed loans for small businesses. The smallest of them, irrespective of the sector they operate in, will be able to secure grants worth 10,000 pound sterling. Germany has floated a $610 billion rescue plan. It has asked, KfW, the state-owned development bank of Europe’s largest economy, to extend loans to businesses. It has relaxed compliance for companies and given them more time to pay their taxes.
France, Europe’s third biggest economy, and Spain, the country with the second highest number of Covid-19 deaths in the world, have their stimuli pegged at $335 billion and $220 billion, respectively. Both have announced steps that cover companies as well as individuals. France has suspended rent and utility charges, extended credit lines for companies and also promised a $50 billion support to prevent its companies from going belly up.
The response of the Indian government and the Reserve Bank of India is a mixed blend, the latter’s being a bit late but ticking all the other boxes in terms of size and intent–a sharp 75 bps cut in key interest rate (repo rate), a 100 bps reduction in banks’ cash reserve ratio (CRR being a liquidity tool) and giving more time to people to pay their EMIs.
The government’s ₹1.7-trillion economic package is good to start with but needs more work and aggressive steps. It has still left out large companies and thousands of small and medium enterprises. None of them is in a great shape. While Europe has focused more on employers, irrespective of their hue, and the US can afford to cater to corporates as well as individuals and is doing both, the government has so far focused on the poor through its trusted PDS and social sector schemes.
This is not a time to focus on the fisc. A package to save Indian companies is urgently needed to set the multiplier effect rolling, lest the virality multiplier of the coronavirus devastates them for good.