The great depression started in 1929 and it took world months to overcome this crisis. Beginning from United States, It was a severe economic depression, major cause of this depression were few, for e.g
(1) Income inequality was increasing
(2) After effect of World war-1
(3) Severe drought hit the US and Canadian prairies
(4) The Smoot-Hawley tariff act
Initially it was implemented with the intention of protecting US companies but the nature of tax was such that it forced other Nations to stop exporting goods to the US. So the effect was that it further reduced production and revenue of all such firm. Several measures were taken but great depression of 1929 defied all. To end this crisis Nations finally relied on Keynesian economics, It says government should increase demand to boost growth, It supports the expansionary fiscal policy, advocates spending on infrastructure, education and unemployment benefits. Although it had some shortcomings (for e.g it increases inflation) but it worked well and somehow world economy could revive. In present scenario COVID-19 has created similar situation before the world. However reason of this slowdown is different, now to boost demand, Nations across the world is again depending upon Keynesian school of economics. Taking cue from others, Government of India also announced 20 lacs crore stimulus package. But why even this gigantic relief package could not cheer up Sensex and Nifty? Economists are disappointed that no significant measures to boost consumption and infrastructure in 20 lakh crore package were taken, small amount will come from government spending, this package included liquidity measures which was already announced by the RBI.
Economic situation of Indian economy looks grim and GOI has to react now. But what should be the next course of action??
Recently govt of India announced lockdown 4.from lockdown 1 to 4 govt gradually shedding it's responsibility and shifted it's shoulder to States..
ReplyDeleteAnnouncing package of 20 lakh crore is another catastrophic jumla of the present govt.
Need of the hour is-
1) to increase demand so that the economic cycle will starts for that govt must give money in the hands of people so that consumption increases and more demand created..more demand more working hands ultimately more jobs
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DeleteAs an advocate and also with the economics background, I am bit conversant with the whole scenario going on in the world economy and especially the Indian economy. Firstly, decoding the financial package recently declared by the union government, we have to have little bit knowledge regarding how the whole financial system of a country works, it is mainly divided in two sections, first the budgetary(fiscal system) with is mainly in the ambit of the union govt, and second is the monetary system with is in the ambit of the central bank(RBI which is a autonomous body). So financial system of a country can be controlled from both the two sides , from the government side by fiscal measures like ,to change the revenue (by taxes etc) or to change the expenditure by change in the spendings. The FBI on the other side take different measures ,like change in the internet rates, or open market operations( which is sale of govt securities in the market) so briefly it can change the money supply in the country. Coming back to the discussion of the financial package it totally revolves around the credit facilities extended to different sectors like msme or several other sectors, according to my opinion the package wholly depends on the rbi last 2 deductions of the rebo rates, which is done in the last months, as a small point reduction in the rebo rate by central bank enhances the credit facilities of the banks by several times, so the relief given by the govt Is wholly the package or advertisement of measures taken by rbi in previous months, govt has only made a very small change in the fiscal spending to revive the economy,which is very minuscule, and not enough to revive the economy.
ReplyDeleteAs the measure taken by the rbi like expanding credit facilities can only affect the supply side of the economy, if the demand is not generated enough , who is going to purchase goods and services, and in a low demand , why a producer is going to take extra credit(loan) is he has no demand to sale his products in the market.
The main factor behind the low demand is insecurity and fear of the future, every normal individual has fear regarding the future months or year is he or she spended all his worth or money in present how will he survive in future if this situation persists.
Conclusively the govt must also have to focus on the demand phase of the country by enhancing the purchasing power of the common individual and also have to eliminate the fear from minds, as the economy can only be revived by enhancing the demand not only from incentivizing the supply.
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