India’s fiscal response will have to be exceptionally intelligent as emerging market countries are forced to respond with hands tied behind their backs, he said during an expert panel discussion on the country’s Covid-19 exit strategy hosted by the National Council for Applied Economic Research (NCAER) on Wednesday.
Chinoy suggested that the government should firstly focus on the health fight, while providing support to low income families and small and medium enterprises (SMEs), along with a backstop measure in the financial sector to avoid amplification of the Covid-19 shock.
Sonal Varma, chief India economist at Nomura Holdings, who was part of the panel, said India needs to take a more direct approach to policy intervention. India’s fiscal response has so far largely relied on banks to lend and invest, she said.
Varma proposed a fine tuned and direct response as seen in other Asian economies. “For instance, the government can directly invest in equity, leverage it and put funds in a special purpose vehicle that directly provides loans to SMEs on a condition that the SMEs keep all employees on board,” Varma said.
