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The economic consequences of the Covid-19 outbreak are unprecedented. Governments across the world are in uncharted waters, and we could be looking at a Great Depression-like scenario soon. The 2008 financial crisis was preceded by warning signs. But now, in less than 12 weeks after WHO was told by China about the virus, economies are in a state of seizure. An extraordinary situation calls for a proportionate response. Such a response has to be led by the government, using every available lever in the fiscal policy toolkit to mitigate the scale of disruption.

Social distancing, the primary defence against Covid-19, has already resulted in economic disruption and attendant job losses. The most vulnerable are workers in the large informal sector. Government expenditure needs to be switched, unproductive subsidies slashed and the ubiquitous banking channel used to transfer benefits directly to rural households and vulnerable urban households. The direct transfer of income will partially arrest a fall in household consumption, and thereby mitigate the economic dislocation. This should be supplemented by an adjustment in taxation measures, another lever of fiscal policy.

Many sectors such as tourism and transport are reeling under Covid-19’'s impact. The government needs to quickly put together a fiscal package which supports the most vulnerable sectors at this juncture. Unlike 2008 this will not be a bailout occasioned by poor business practices. It’s a measure to mitigate the economic hardship of an unprecedented situation. Fiscal policy is the roost effective tool because government spending and resource transfer can have quicker impact than any other tool. Moreover it can hasten the recovery from a disruption which will later give the government a chance to pull back its deficit.

As an Economic Times analysis showed this week, the Rs 18 lakh crore tourism industry is expecting direct job losses of 1.2 million; the hotel industry is expecting revenue losses of 1.3-1.5 billion. The restaurant industry which employs over 7 million people is expecting likely job losses of 15-20%. Aviation experts are predicting over Rs 4,000 crore in losses to private carriers and the retail business is expecting about 11 million job losses if the current crisis continues for a few months.

This is one reason why the PM asked all Indians and bosses to see things through a humane lens when taking decisions on layoffs. The government has set up a special Covid-19 task force to examine options for a recovery.

Yet the scale of the disruption is such that while we look at sector specific bailouts, the time has also come to seriously consider a Universal Basic Income and direct cash transfers in the months ahead. From economists like Daniel Susskind at Oxford who is calling for £1,000 per month to every UK citizen as financial relief - to senator Mitt Romney urging the US government to pay 1,000 to each American adult - the debate around UBI is now mainstream in most major economies.

Across the world, both governments and central banks are pulling out all stops to cope with the situation. In India, RBI has already unveiled measures to stabilise the financial markets and make enough liquidity available. More such measures may be needed because India'’s financial sector was fragile prior to the current crisis. Therefore, the central bank'’s armoury must be used to make sure that financial stability is maintained. This will also lead to a reduction in lending rates across the economy. The primary tool however will have to be fiscal policy. Even as it’s deployed, government should use the opportunity to usher in long overdue structural reforms. That will enable tax revenues to rise, thereby bringing fiscal deficits under control.

If the current crisis continues, which industry will experience maximum job losses?

A) Tourism

B) Restaurant industry

C) Aviation industry

D) Retail business

Correct Answer: D

Solution :

(d) As an Economic Times analysis showed this week, the Rs 18 lakh crore tourism industry is expecting direct job losses of 1.2 million; the hotel industry is expecting revenue losses of 1.3-1.5 billion. The restaurant industry which employs over 7 million people is expecting likely job losses of 15-20%. Aviation experts are predicting over Rs.4,000 crore in losses to private carriers and the retail business is expecting about 11 million job losses if the current crisis continues for a few months.