Summary: What India/World can do to avoid deep recession?
This piece is just meant to be summary but a few points have been added.
- Measures suggested here are mostly meant for ongoing recession or possibility of it but others are more applicable for future recessions.
- Current crises is result of mix of supply and demand side factors hence while both need to be taken care of ;demand side measures ( especially govt led) must lead the way and influence supply side adjustments because expectations of future of economy have dramatically changed for the worse
- Measures must be proactive as macro economic models and simple economic theory can suggest direction of economy even before data starts coming in
- Demand boosting measures include: speeding up current projects; higher spending in agriculture ( boost productivity) & rural sector because of higher expansionary effect; promoting during recession non for profit activities by corporate and charitable organizations which may include HH maintenance/repair/expansionary activities; rate cuts supported by Central Bank/sovereign guarantee which is more applicable in countries hit by sub prime related crises; concerted fiscal stimulus by all countries; special funding by dollar surplus sources to invest in US and Europe. In India Railways with huge surplus and likely to be having a portfolio of approved but idle projects must accelerate spending; launching highly beneficial long term projects such as self contained model cities to boost real sector, stock markets and spending; capital infusion of Banks in US and elsewhere must be conditional; media management to change expectations on future of the economy and looking at alternatives to layoffs
- Supply side: usual liquidity enhancing policy measures; easing terms of payment on large infrastructure projects; as in US Indian real estate Cos must offer variety of payment choices to increase upfront cash availability, increase demand for housing (demand side measure)
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