Expert take on how govt could boost economy post coronavirus

“There is a need for Targeted Long-Term Repos Operations (TLTRO) for below ‘AAA’ rated entities. The cap on banks in terms of their investments in mutual funds -- which is kept at 10 percent of net worth as of today -- on a temporary basis can be released and thus there will be more flows coming from banks, who are sitting on Rs 4.80 lakh crore money in repo market to mutual funds and automatically market will become more liquid,” he added.

Next, Mundra pointed out that the current crisis has no parallel and said, “From the time the economic structure which has emerged today, we have not seen anything of this breadth, width and reach. We still do not know that where we are on this crisis, but that also makes a case for employing all kinds of tools and taking all measures – conventional, unconventional, never tried. To implement any more measures at this point of time when the dimensions are still not clear, probably may not achieve the whole purpose. But having said, this is a great time to think about the few measures which can be implemented, which are available without changing the structure in any great way.”

Sen next stressed on the need to focus on the damage caused to the financial sector. He said,  “The government will not have resources and the only way out of this situation is monetisation. The government revenues are going to be seriously down for the next year. So, this has to be monetised. The sensible way of going about it is to concentrate all the damage into the financial sector – mainly the banks and to a lesser extent NBFCs.”

“The government’s principal role would be to actually bail them out as and when the time comes. The government should be ready with fairly substantial recapitalisation funds which will be needed. The government should be prepared that a large chunk of the funds will go into this recapitalisation process. The other chunk of funds will be going essentially on propping up demand,” he added.