Economics Demystified

Amid slowing demand, Government’s recent announcement of loan moratorium, collateral free loans and other infusing liquidity measures are not enough to help small businesses to navigate through the crisis. Going forward, a multi-pronged approach where a decent blend of fiscal and monetary policies is required with policy interventions made at both centralized and a decentralized levels. The adverse effects of covid-19 pandemic are looming large on the economy, causing damage to both lives and livelihoods. Among many areas, MSME sector has been bruised badly in the aftermath of lockdown. The sector was already weakened by twin shocks of demonetisation brought in Nov 2016 and cumbersome GST tax structure introduced in July 2017. The pandemic has further added to their woes which are struggling hard to stay in the business with many on the verge of getting bankrupt. MSMEs are backbone of the Indian economy. There are around 63 million MSMEs engaged in businesses ranging from manufactu...

RBI’s latest announcement on fifth round of Operation twist to “flatten” the yield curve may ensure better monetary transmission; however, on the flip side it may actually hurt corporate investor’s sentiment. The Central banks across the world have a long history of experimenting with unconventional monetary policy tools and strategies for liquidity and interest rate management in the economy. One such example is of “Operation twist” which was first exercised by US Federal Reserve way back in 1961 and later in 2011 where it twisted its steep yield curve using clever money market operations. Taking a leaf out of Federal Reserve’s book, RBI introduced its own Indian version of this quantitative easing programme in late 2019 as conventional tools of policy rate reduction seemed ineffective. Operation twist (simultaneous buying of long term securities and selling short term securities under Open market operation) was first introduced on 23 December 2019, with the objective of correctin...