If uncertainty persists, second wave may do more damage than first: Pronab Sen

As India struggles through the second wave of the Covid-19 pandemic, the Finance Ministry said that the damage to the economy post the second wave will be lesser compared to what happened after the first. However, former Planning Commission member Pronab Sen feels this might be a bit of a leap of faith.

The damage caused by the first wave was easily calculable and limited, Sen believes, adding that this time around it is much more complex. “The damage is coming essentially from a huge increase in uncertainty that has happened,” he said on ET Now’s India Development Debate.

“If uncertainty persists, the damage could potentially be worse because we should not expect the same recovery that we saw last year where when the lockdown was lifted, there was a sharp recovery that took place,” Sen said. “It will not happen this time around because there are no triggers like lifting of lockdown.”

Even business decisions regarding supply chains are going to be under enormous stress, as per Sen. A recent Ficci survey showed that India Inc‘s business confidence has been severely hit and muted expectations have pulled down the overall business confidence index by 20 points.

Business heads have been calling on the government to loosen the purse strings and provide a fiscal stimulus to support the economy. Finance Minister Nirmala Sitharaman said the decision to provide another fiscal stimulus will only be taken after an assessment of the impact of the second wave is completed.

The answer is not clear, according to Sen. “We really do not know whether or not the supply side/production side can actually respond to a demand stimulus because you may be having episodic lockdowns all over the place,” he said, adding that giving a demand stimulus is not going to help states where there is a lockdown, though it will help states where the supply side is open.

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This time around, fiscal stimuli will have to be more nuanced and cannot be done as a national central government policy, Sen claims. This time it will require close coordination between Centre and states. “Unfortunately, over the course of the last one-and-a-half years, we see very little of that coordination happening,” he said.



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