Demand Shift vs Demand Growth & 10% “Stimulus” Package

We always need to be mindful that we do not confuse Demand Shift vs Demand Growth.

We already seeing there is humongous shift towards online businesses which basically replaced or reduced the human interactions. Take case of e-commerce, cashless payments, hyper local. Although these represents very minuscule share in overall transactions.

In this digital world, there will be cases where online businesses will dismantle large pie of offline businesses. Will this be negative for demand? This shift from online to offline was already underway but got the ‘catalyst” post #covid-19.

Demand will shift from under- capitalized small firms to larger firms which are more flexible in terms of operations and also as per the need of the “hour”. Performance of larger and online(tech) focused companies will rise exponentially. Recently in S&P 500 the FAANNG (Facebook, Apple, Amazon, NVIDIA, Netflix, Google) are top performers. The focus has shifted towards growth companies from value companies.

But on back of all these online business boom, there is medium and small sector which is in “coma” which if not get dose of demand will soon may “decease”.

There going to be consolidation across industries as there will be demand shrink and job losses.

10% “Stimulus” Package

The economy has become standstill where number of transactions has dried up with liquidity squeeze. Liquidity is needed but not sufficient. Economy’s battery has frozen which needs to get started with fuel of liquidity.

Most of the the current 10% of GDP “package” is Monetary, where credit & timing of cash flows has been made flexible. Cutting TDS will not incentivize anyone to spend.

Demand is the core issue which needs to get stimulated in order to start the frozen battery. There should be incentives to “reluctant” consumers, who have been crippled by Covid to start consumption as soon as the lock down is over.

There could be cut in duties on cars. Give 100% depreciation on certain purchases. Provide few lakh tractors, give them to farmer cooperatives for a considerable moratorium period. Auto, steel, iron and agriculture industry gets “glucose” to run again. Jobs get created all around.

Give 100% cash in the hands of consumers through some effective mechanism. This help is most needed by informal sector workers who doesn't come in the purview of government.

Government needs to take the lead in SPENDING, so that it mobilises the engine. Medium and Small sector enterprises takes more debt and it raises the risk in times of uncertainty.

Create the environment of DEMAND first then provide LIQUIDITY to service it. Certainty of Demand/Income drives certainty of spending and borrowing. If the sentiment turns in the way where people turns back towards borrowing — in turn stalling the economic growth. Government has to the SPENDER of first resort to move whole value chain.

The Government has to encourage transactions and become: The SPENDER of First Resort, and LENDER of Last Resort. This is not the time to announce intentions, but to show them with actions that WE ARE HERE WHATEVER IT TAKES.