NEW DELHI: To bring the global economy back from the abyss it has been pushed towards by the spread of the Wuhan virus, world leaders have announced a slew of measures, including help to households hit by the shutdowns and central bank-cash injections and sovereign loan guarantees for companies.
The stimulus bill for just the West – US, Germany, France, UK and other European nations – in actual cash outgo and promised loan guarantees totals more than $74 trillion, according to estimates. It places pressure on India, which is working out its own economic response to the crisis to come up with package large enough to address the combined impact of an ongoing slowdown and the shutdowns in work that are happening across the country. Said M Govinda Rao, former member of the Prime Minister’s Economic Advisory Council, “no one will talk about fiscal deficit, the need of the hour is to help the vulnerable – both industries which are hit and the poor who are losing livelihoods.”
Corona crisis: How other economies provided relief
A task force set up by the prime minister on Thursday is expected to work out a raft of measures including loan deferments for small businesses, tax sops and loan guarantees besides more money through employment guarantee schemes. “Income support programmes for those working in the informal sector is a must as this is the sector which is hit the hardest by the crisis and the lockdowns,” said Prof Ravi S Srivastava, former Chairman of the Centre for Regional Studies, JNU.
Nearer home, India’s estranged neighbour, Pakistan, is readying an emergency response, including support for the poor, interest rate cuts for which it will be borrowing $588 million from the World Bank and ADB. Pakistan’s bailout plans include a second key rate cut on top of its central bank’s 75 basis point cut last Tuesday, to make money cheaper for businesses. It has also decided to ask officials to stop tax raids and is mulling tax cuts and loans to vulnerable business sectors, which are expected to lose up to $10-15 billion in production.
The poor are to be given income support from the Benazir Income Support Programme, while provinces are chipping in with their own food packages for the poor. The key to the global response has been two –pronged : help vulnerable households with cash, food assistance, subsidized sick pay, and healthcare on the one hand. On the other hand the second priority has been saving the world of business.
As bills fall due, firms which have lost business need cash to continue running . This requires a bail out of companies ranging from airlines to restaurants to malls and factories hit by the shut-downs and slowdown which the pandemic has brought with it, in the form of loan guarantees , tax rebates and lower interest rates. The money promised or committed has been mind-boggling though economists still are unsure that the response is enough.
The US President Donald Trump signed a $ 1 trillion relief which includes giving tax payers cheques of up to $ 1200 each besides $ 500 for each child. This would cost about $ 250 billion. Besides unemployment benefits, sick leave, food and medical aid to Americans would be supported by the Trump administrations. Some $50 billion is also being extended for secured loans for the airline industry, besides assistance in the form of secured loans or loan guarantees for other parts of the economy.
While the US Federal Reserve has slashed its interest rate to near zero and encouraged banks to lend to crisis hit businesses, the American Treasury Department has said it will defer tax payments without interest or penalties for businesses hit by the crisis.
USA’s neighbor Canada came up with is being hailed as one of the best rescue packages worth some 3 per cent of the country’s GDP, and combined some US $ 54.15 billion, including $ 18 billion in direct support for individuals and companies and $ 38.35 billion in tax deferrals for both households and businesses. This includes a new $ 10 billion Emergency Care Benefit of up to $ 900 every fortnight to provide support to workers including the self employed who have to stay home but don’t qualify for employment insurance or paid leave and another $ 5 billion in unemployment dole. Canada has also deferred tax payments till end-August this year.