Will Rs 20 trillion be enough?

The Indian government issued guidelines for restarting certain businesses, such as agriculture, road transport and certain self employed professions, including plumbers and electricians, in areas which are deemed to be free of coronavirus. This is designed to help those dependent on daily wages. But will anyone take the risk? After a pizza delivery boy tested positive for the virus, 72 families in South Delhi have been put under quarantine. "None of the 72 families have been tested as of now. They will be tested if they develop symptoms, according to District Magistrate of South Delhi  B M Mishra." "India has quarantined tens of thousands of people in their homes. But some of the measures designed to keep them inside -- like the signs posted outside their houses and releasing their personal data -- have led to unintended and unpleasant consequences," reported BBC. Like living in a zoo, as one sufferer said. "An almost total lockdown till May 3, with very few economic activities permitted, is justified if the marginal benefit exceeds the marginal cost. But does it?" asked Saubhik Chakrabarti. Considering its vast population the number of infections in India has been small and given its youth the dangers are limited. On the other hand, "The Indian state does not have the fiscal capacity to both take care of millions of poor who have been disproportionately hit by the lockdown as well as provide a large stimulus to the economy." India is spending only about 1% of GDP in supporting its economy when the US is spending 10%, Malaysia is spending 16% and Japan is spending a whopping 20%, wrote Prof Pulapre Balakrishnan. Like the US, India should spend at least 10% of GDP, or Rs 20 trillion and this may raise the fiscal deficit to 14% of GDP, same as in the US. The RBI is allowed to buy government bonds from banks but not from the government, wrote Niranjan Rajadhyaksha, but this rule should be set aside and it should be allowed to buy both central and state government bonds. The idea is to lend money to governments so that they can distribute to the poor to increase demand and spend on infrastructure to kick-start the economy. "The country's lenders chose to park a record Rs 6.9 trillion with the Reserve Bank of India (RBI) on Monday for a paltry return of 4%, even though buying government bonds or giving out loans would have got them higher rates," wrote Aparna Iyer. Yields on the benchmark 10-year bonds hardened to 6.5%, when interest rate is 4.40%, and yields of state government bonds were as high as 8%, wrote Sajjid Z Chinoy. The RBI should guarantee losses for banks in purchasing long duration government securities and also purchase corporate papers with suitable discounts. Previous governors of the RBI had stopped banks from hiding bad loans, "But the new RBI regime under Shaktikanta Das has been different. It has already allowed banks to extend MSME (micro, small and medium enterprises) loan recast scheme and allowed restructuring of loans to the real estate sector." The real estate sector has an unsold inventory of Rs 3.7 trillion and may have to lower prices by up to 20% to free up cash. The Center has been borrowing from the RBI to tide over its cash-flow mismatches before the virus. What if Rs 20 trillion is not enough? Sadly, India is not the US.