Macroeconomics of Crisis
Theoretically inclined Macro-economists think of an economy in terms of Growth Trends and Cycles, with latter showing peaks and troughs (recessions) of differing severity. The Global financial Crisis (GFC), which some refer to as the US financial Crisis reminded us of the possibility of a third possibility, Depressions, not seen since the Great Depression of the 1920s. The Global Pandemic set off by the SARS Coronavirus 2, has brought in a new economic state, a government mandated Lockdown of whole or part of the economy, which requires a rethinking of the different levels of economic distress and how to deal with them.
In the context of India, an emerging market economy, we think of all these in somewhat different way from developed, rich, mature developed economies (DCs). In normal times, the key issue for Indian economy is to maintain growth rate at is potential. India’s equivalent of the DC Recession is a “Growth Recession, which have historically been driven by droughts, but were increasingly driven by oil shocks and demand shocks. The Indian equivalent of the Depression (or near-depression) is an Economic Crises, like the BOP crisis of 1990-1991, the external shock (GFC) induced Growth crisis of 2008-2009 and the crisis induced by the SARS CoV 2 pandemic. The Growth recession of 2019 was particularly severe and could be described as a Great “Growth recession”. The issues connected with this have been analysed in the author’s research papers.
A completely new element has been added to Crisis management and Crisis handling, by promulgation of Medically driven, Government mandated lockdowns of economic activity. This requires further analysis and refinement of Crisis handling approaches.
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