The countries are now in the hurry to give out the helping hand to their sinking economies, rolling out the stimulus packages. With the economy taking the major hit, of the latest microbe on the go corona virus, contaminating every surface and sector it contacts, the world is brought to the standstill. But how did it reach so far? And how are the Governments dealing with this catastrophe across the globe?
How Corona Affected the Global Economy?
When the outbreak of SARS occurred from China, almost 20 years ago, China’s economy reported a major dip, but, at that time, China’s contribution to the global economy was 4%. But with China making its foothold stronger in the production sector over the past two decades, now the communist party ruled country holds 16% shares of the global market, making it the second-largest economy after the USA.
One of the major reasons of China being able to achieve this feet was their rapid setting up of factory networks manufacturing everything raging from toys to hi-tech gadgets for the export all across the world. With the pioneering of globalization over the past few years, the supply and demand chain among all the countries has become so interdependent that any disruptions in one part of the chain cause the disturbance in the entire cycle.
Due to corona virus, the manufacturing units were shut down in China and this resulted in the Global stock market to record one of the lowest values since the great economic depression of 2008.
Reserves to the Rescue
In the economic terms, the stimulus is the use of fiscal policy, i.e. the government’s revenue collection, to boost the economy that is about to hit the recession. It is sometimes referred to as “pump-priming”.
Key goals of the stimulus package are:
Break the Cycle
The economy becomes unstable, customers spend less. This causes businesses to struggle. As a result, the employers have to downsize and the cycle continues. Pumping money into the system to keep the overall economy stable breaks the cycle.
Creating Jobs
The investment in various sectors such as infrastructure, the employment percentage of the population increases.
Unemployment Benefits
The unemployed, who face the worst effects of the poor economy, are supported through benefits, income tax exemption and government subsidies, providing them with the much-needed relief.
Supporting States
To meet the demands of the areas under the jurisdiction of the state legislature, it becomes necessary to pump the money into the economy of the state and limit their budget shortfalls.
One such stimulus package was used by the United States of America, aimed at recovering the economy left in shatters after the great economic depression. India used its first stimulus package in 2008 to secure its bank deposits and stabilize the economy.
Stimulus Packages for COVID-19 in Different Countries
Governments across the globe are spending big amounts from their fiscal to keep their respective economies stable in today’s time of the pandemic. They want to control the economic free fall as businesses are brought to the halt with the global health emergency.
- The USA rolled out its biggest stimulus package in the history, on 26th March 2020, of 2 trillion dollars and named it as CARES (the Coronavirus Aid, Relief and Economic Security) Act. It is aimed to provide a sense of security to its citizens. This puts money in people’s wallet to spend now so that businesses can sustain through their customer base.
- In Japan, about to be put in the state of economic emergency, President Abe announced a 1 trillion dollar stimulus package which is equivalent to 20% of the nation’s economic output. This includes cash handouts of 6 trillion yen to the families affected by the coronavirus.
- The European Central Bank announced that it would buy the financial assets worth up to 750 billion Euros ($820 billion) to calm the distressed European markets. It has named the purchases as Pandemic Emergency Programme and is aimed at keeping the bank interest rates low for the benefit of the businesses and its customers.
- The Australian government announced its second rescue package of $66 billion following its initial rescue package of $17.6 billion along with $100 bn in emergency banking measures.
- India has declared 1.7 lakh crore INR COVID-19 stimulus package on 26th March 2020.
Indian Government Stand on the COVID-19 Stimulus Package
The government of India has pumped 15,000 crore rupee in the Indian healthcare system to make it more efficient in providing the Indian citizens with necessary medical facilities and deal with the outbreak of the virus.
Along with this, the government announced rupees 1.7lakh crore relief package for the poor along with insurance for frontline medical workers dealing directly with the infectious containment. This was rolled out under Pradhan Mantri Garib Kalyan Yojana aimed at:
- Higher wages for the workers employed under the Mahatma Gandhi National Rural Employment Act (MGNREGA)
- Rs. 1000 ex-gratia payment to over 30 million senior citizens, widows and specially-abled.
- Rs 50 lakh life insurance for around 2 million healthcare workers.
- Around 87 million farmers will be credited the first instalment of Rs 2000 under Pradhan Mantri Kisan Yojana.
This relief package was announced immediately within the 36 hours of the imposed lockdown, with the intention to reach the poorest of the poor in the country. To make the food available to the poorest of the citizens, the state has announced that the government will provide 5kg wheat or rice and 1 kg of pulses free per month for the upcoming three months.
Among the worst-hit industries due to COVID-19, the direct impact is born by tourism, manufacturing, hospitality industry among others. Reserve Bank of India has announced a three-month moratorium on the payment of EMI(Equated Monthly Installments). This will reduce the repayment burden on the loan availers and bring relief.
With the global stock markets falling and bearing the brunt of coronavirus pandemic, it has become absolutely necessary for the governments across the globe to handle and maintain their respective economies. Only when the individual economies will be maintained, the global impact and economic depression will reduce. Hence, until we see the graphs of coronavirus numbers and world economy interchanging places, it is still a long way to go.