How badly the global economy and the Indian economy will be impacted by the corona virus

Lockdown position

To get a sense of just how badly the global economy and the Indian economy will be impacted by the coronavirus and what’s the best way to be able to deal with the economic challenges I want to go across now live and exclusive to one of the world’s leading business schools joining I said this moment is the former governor of the Reserve Bank of India he’s teaching finance at the Chicago Booth School welcome dr. Raghu Rama Rajan to India today you know we are currently in an unprecedented situation in a very literal sense.

10% Of GDP

He can on the basis of everything that have seen in the public domain so far give us your best sense of the net impact the corona why this is likely to have on the global economy which we have to extrapolate we know that the Chinese economy went down by about 10% of GDP in their second in the first quarter and the estimates for how much the European and the US economy will go down are of similar magnitudes double-digit drops in GDP in the second quarter that is assuming that you can contain the virus by the end and then you can start relaxing measures at this point everybody is looking at China to see if the relaxation of measures there is gonna start an increase in cases once again and if in fact you do have recurrences then the damage could be more lasting because the measures have to be in place for longer so this is the big unknown how long will it take to get it under control.

GDP

GDP will be lost in the process and how much can be recovered when the measures are taken off so those estimates to the Indian context because we don’t know what the full extent of the corona virus will be in India is it possible to get some sense of how badly hurt the economy will be because what we do know is that there is a complete shock to the economy at this moment mass factory is being shut down very few people being employed lots of layoffs people trying to go back to their villages how will this translate into numbers dr. Roger well.

Temporary shock

At this point nobody knows the the key however is to make sure that a temporary shock doesn’t become a more permanent shock in other words that we don’t see a downturn slow cash flow slow revenues milk incomes for workers and that leads to substantial layoffs that leads to firms closing down and when we do get the coronavirus under control there’s much less economic activity because those businesses don’t start again so we need bridges between now and then for the most vulnerable households in India of course for the poor for the migrants we need ways to get money to them so over this period of shut down they can keep body and soul together.

Limited resources

We also need to keep firms small and medium firms which have suffered shock after shock we need to keep them from closing down if they’re viable and that decision is a careful one because we can’t keep every form alive given that we have limited resources but we should keep the mindful ones alive so that they can reopen and similarly for the large firms this is a really careful process that has to be gone through over the next few months there’s a big debate raging in India and globally about whether this is the right opportunity to extend some kind of a universal basic income in the Indian context government revenues already deeply over stretched and you need extra revenues to be able to take care of healthcare facilities however you have to also deal with all these people who don’t have any money coming into their banks in their pockets do you believe that the government in India should seriously be considering some form of income support at this time dr. Raja temporary income support as targeted as possible.

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