Articles by Arun Kumar

The unprecedented lockdown has pushed economies into dire straits and also raised hopes that they would soon rebound to the old normal as soon as the pandemic is contained. But this is unlikely as the deterioration in the resource position and slump in demand can be reversed only by discarding the usual macroeconomic framework and by using a different approach and implementing out-of-the-box solutions. This analysis enables us to understand what policies may or may not work during and after a lockdown and the role of a stimulus and its magnitude.

Tackling the Covid-19 outbreak will require political will and decisive actions from the government in terms of ramping up the healthcare infrastructure, ensuring public distribution of essentials to fulfil basic needs, and income transfers to the poor, among others. The government should not constrain such expenditures in view of maintaining the permissible limit of fiscal deficit. A higher fiscal deficit may not be inflationary now, since demand is drastically down.

An analysis of publicly available data suggests that 98.8% of demonetised currency was returned to the Reserve Bank of India by 13 January 2017. The data suggests a sharp slowdown in the remonetisation process in mid-December 2016, which reached only 80% of what was demonetised by the end of April. Clearly, remonetisation has been far too slow, and its consequences on the informal economy, though invisible to official data, are a matter of serious economic, political and social concern.

This article attempts to make an advance in the estimation of the size of the black economy in India by bringing in the institutional aspects of black income generation and taking the macroeconomic variables they affect into consideration. The fiscal approach recognises that black incomes are generated through many different ways in various sectors. The size of the black economy is projected on the basis of the share of the services sector and trade in gross domestic product, with the crime rate representing the extent of illegality.