Apart from China, where the outbreak first began, most large emerging market economies face a range of idiosyncratic concerns when it comes to how they are positioned to respond to the coronavirus outbreak. Brazil, Russia and Indonesia are all dealing with challenges of their own in the healthcare and policy arenas when it comes to containing the spread of the virus or curtailing its worst effects. India is the world’s biggest democracy and features a relatively young but still rural population, and policymakers must navigate carefully through budgetary and logistical challenges.
Steady and targeted stimulus, with constraints
India’s policy response to Covid-19 has been measured relative to other large countries like the US and China. On the monetary side, the Reserve Bank of India has cut policy rates by 75 basis points, reverse repo rate by 90 basis points, cash reserve ratio by 100 basis points and called for a moratorium on term loan and credit card repayments. On the fiscal front, the government has announced cash and kind support for lower income group households.
India’s consumer debt-to-GDP is one of the lowest among emerging markets. Combined with various other measures, the transmission of liquidity into the real economy has been patchy but decent during this crisis.
Our concerns are more on the fiscal side. Room for fiscal intervention is limited, given the budget deficit was already large and the economy was slowing before the coronavirus outbreak. So far, the government is taking a wait-and-see approach, focusing on fiscal discipline and controlling the deficit.