Fearing a 40 per cent contraction in India's gross domestic product (GDP) in April, experts have cautioned that India should not send out a signal that the lockdown is resulting in making it a controlled economy.
"There are some signals... the global markets are fearing that India is going to slide into a controlled economy which is very damaging," said former Chief Economic Advisor Kaushik Basu at a webinar organised by the Institute of Economic Growth.
Naushad Forbes, former president of the Confederation of Indian Industry (CII) and co-chairman of Forbes Marshall, said his back of the envelope estimates indicate that the country's GDP contracted 40 per cent in April. "Only agriculture, government services and telecom would have come through unaffected," he said.
Basu said the first step that India took to arrest the spread of coronavirus was correct.
He clarified that unwinding does not mean that you open up everything. "You have to have rules on large gatherings. Buses needed to be half full with open windows," he said.
However, the country has to start factories, firms and allow mobility. "If we don't do these things, the blow on the economy will be so crushing that we would not be able to handle it if it comes in the full swing," he said.
Some top economists have suggested providing cash and food subsidies, he said, adding he agreed to that. "But beyond a point, if you have closed economy and the government gets to distribute items to people through rules and regulations, you will not succeed. You have to allow space for the markets. Suddenly trying to replace markets with bureaucrats giving orders, and police and people carrying out those orders, you will not succeed," he cautioned.
Basu said Vietnam, Hong Kong, Taiwan and Mexico are positioning themselves to get more businesses. "We need an exit strategy (from lockdown). We need to create space for the private sector, small industries. If we give that signal right, I think we will come out of it actually better," he added.