Ans. In this current situation where 40days nationwide lockdown has adversely affected our world economy.
India like developing nation is now facing a lot of crisis due to shutdown of industries, private offices and much more which give livelihood to people.
India is already facing poverty and unemployment which always work as big pillars and stops the development. Now, this situation has become more critical this is the time of great worldwide depression 2020. Every country even the most developed nation like USA is also facing the crisis.
Every country must take some immediate measures to cope up with this covid-19 and to rebuild their economy.
Now, we will see how India rebuild its economy:-
• there is a big gap between rich and poor this condition can somewhere help us to remove this big gap.
In India the 1% rich people’s income builds more than 70% of income generation and other 99% people contribute to less than 30% .
So, as one of IRS officers said on 23 April, we should increase more than 40% tax on the people who earn more than or equal to 1crore annually. This will help in revenue generation.
As we know that due to lockdown 80% GST collection has reduced.
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• TO control dificit demand govt. should increase its expenditure.
•Govt. should provide essentials to daily wage workers.
•It should reserve revenue fund for MSMEs as it contributes nearly 30% to GDP of our country.
•RBI should LRR reduced, which will help commercial banks to give loan to public and it will increase money supply in market.
• Margin requirements should decrease so that easily credit can be available to public.
•Repo rate should also decrease so as to provide people cheap loan.
The above shown diagram represents the deficit demand.
This is condition when supply is at full employment level but demand is deficit due to lack of money supply in market.
As I have already shared some of the measures to combat this situation
However, there is irony in current situation like as above I shared the measures to combat deficit demand but due to lockdown manufacturing industries, restaurants many other institutions etc. are closed. So, this condition represents excess demand and deficit supply.
Reasons of excess demand:- •Increase in govt. expenditure
• Decrease in the tools and policies of RBI
Like.. currently reserve repo rate has decreased by 25%.
•Increase in credit facilities.
• Increase in propensity, this is because consumers can’t save money they are spending on goods and services.
The equilibrium is at P* and excess is at P1Qd.
This is the condition when the price of commodity is below the equilibrium level.
In this current situation some commodities price has fallen to below equilibrium E.g crude oil in Saudi Arabia
At last we got that there is condition stagflation where both excess and deficit demand exists.
Wrote by VIDHI MITTAL