It Takes Two to Tango: The Demand Boost versus Supply Push Conundrum

Abstract

The world economy is going through an unprecedented crisis today as the Covid19 pandemic is crippling the economic activities of all nations, both developed and emerging ones, and putting both human lives and livelihoods at a significant risk. In India, we witnessed the domestic economy suffer the dual shock of decline in demand and supply as both individuals and corporations got impacted by the stringent lockdown measures adopted by the state and central government during the past 2 months in order to control the spread of Covid19 infections. The biggest impact of Covid19 to the domestic economy has been felt in the steep decline of private consumption which constitutes 60% of domestic demand, as consumers curtailed their discretionary expenses both as a safeguard mechanism in the prevailing economic uncertainty and associated labour market distresses as well as supply chain disruption issues owing to the lockdown measures initiated by the governments. The economic situation was further worsened by steep declines in the merchandise exports and imports by India. The steep fall in domestic demand during the recent months since the onset of Covid19 infections in India is best captured by the sharp decline in electricity and petroleum product consumptions across both urban and rural areas.