AIIB extends its support to India

The Asian Infrastructure Investment Bank (AIIB) approved a $750 million loan for India to fight the Covid-19 Pandemic. The bank also stated that the fund will help with ‘bolstering economic aid for businesses, including for the informal sector, expanding social safety nets for the needy, and strengthening the country’s health care systems’.

India currently has the third highest number of coronavirus cases and according to the world bank 270 million people in India live below the national poverty line. While 81 million live in densely populated settlements with limited access to health care.

This loan is one of the many, banks across the world have provided India with funds to combat the coronavirus. The world bank has provided a $1 Billion package and the AIIB has also helped India previously with the help of loans.

This loan focuses on the informal sector and strengthening the healthcare systems, which is the need of the hour, since those working in the informal sector and living in poor conditions are the ones who are most affected and have limited access to healthcare and sanitation. Therefore, by giving out this loan, the poorest sections of the society will be helped and since they are more likely to be affected from the virus and less likely to have access to health care, it is important that they be taken into focus. The informal sector is small businesses and jobs, which are not monitored or taxed by the government, this is the backbone of rural India and a large number of people in the rural areas are dependent upon it. Strengthening the informal sector is also important at this time since it has broken down due to the pandemic. By strengthening the informal sector, people who are a part of it are likely to be poor and with the help of this may be able to keep their businesses running and feed their families.

The loan is important since the government has failed to make any economic trademarks. According to a Deutsche Bank report, India’s revenue and expenditure measures are at its lowest. While India’s Fiscal response is also one of the weakest when compared to other big economies such as South Korea, Germany and Brazil. This may be because at this point the government may not have confidence in what to expect next or what steps to take, since the situation is unprecedented. This loan will in a way help the government morally by helping them gain confidence and hopefully increase its revenue which can in turn be used in other ways to help the economy.

Although, these loans may save the day, in the long run paying back these loans may lead to a tough time since most economists predict a contraction in the economy and it may be hard for the government to pay these loans back. This will lead to a budget deficit which may not always be bad if controlled, but in this case the multiple loans taken by the government only increases this gap with very little idea about what will happen to the economy next and thus with time the burden of these loans may keep on increasing.

Image Source- aiib.org

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