American Political commentator and three-time Pulitzer Prize-winning author, Thomas L Friedman says, “There is the world B.C. — Before Corona — and the world A.C. — After Corona.”
Nothing can be truer.
For India, the COVID-19 pandemic could not have come at a worse time. The Indian economy was estimated to grow at 5.5 % but that growth estimate has now gone for a toss. The COVID-19 pandemic has left a deep imprint across various sectors of the world economy and triggered an unprecedented slowdown. India, as an emerging economy, could not have kept itself insulated from the tribulations of this crisis.
Policy-makers across the world are grappling to look for policy prescriptions to see them through this crisis. The much necessary “lockdown” and suspension of work and movement, announced by the Indian government, to stem the progression of infection in the country, has resulted in a slump in consumer demand with people only buying essential commodities and avoiding purchases of non-essential commodities.
Sectors like travel and tourism, restaurants, malls, and multiplexes have been the worst affected with almost immediate effect. Migrant workers are seen swarming across our National highways amid the lockdown, small enterprises are forced to shut shops resulting in job losses. In short, the less privileged has been hit by the lockdown, a necessary fallout of the pandemic, the worst.
How Can We Minimise the Impact of COVID-19?
In such a critical scenario, Indian policy-makers have no past policy template to fall back on. Such pandemic has not affected the country before and as such, the absence of a prior global policy template or prior experience to deal with such a crisis has complicated matters.
There is great emphasis on the need to plan on the developing conditions, once the lockdown ends. “Economically speaking, India is faced today with perhaps its greatest emergency since independence,” former RBI Governor, Raghuram Rajan wrote, as he emphasised the need of Subject Matter experts to help manage this crisis.
It is likely that the Government would have to look at a 2-way policy – one that leads the monetary way and the other — the route of fiscal policy. On the monetary strategy front, we have seen what the USA has done – it has released a massive $700billion quantitative easing programme. But India cannot afford to face this brutal crisis in the same ways as the other developed countries with deeper pockets and a fully functioning welfare state. India must ensure, in constructive steps, in securing and providing a social and economic safety net for the neediest – the jobless population, at first.
Spending Resources on Underprivileged – Top Priority
Though the lockdown was necessary, it has come with enormous costs in a country like India; it had led to untold sufferings, especially for the unorganised sector and migrant labour. Prevented from working during the lockdown period, the unorganised workforce will be left to face abject poverty if no prompt action is taken. With India’s limited resources, this is a daunting task. But as life and livelihood go hand in hand, we must take utmost care to ensure the survival of the underprivileged through steps like Direct Bank Transfer to ease out the cash -strapped poor (which has already been done); through a combination of public and NGO provision (of supply of free food, medicines, hospital charges and shelter) and through private participation, where communities will ban evacuation on non-payment of rent, moratoria on debt-repayment.
Return to Fiscal Rectitude
This lockdown has already seen markets dip 35% and it is estimated that there will 15-20% drop in corporate earnings in the coming year. A return to fiscal rectitude on part of the government can bolster the weakened morale of the investors and reassure the sentiments of the corporate sector. India cannot afford to allocate 10% of GDP (like the USA) to mitigate this crisis. While spending on the needy may be the right thing to do now, we should not lose focus of our budgetary constraints. As Raghuram Rajan mentioned his paper, “…we have to prioritise, cutting back or delaying less important expenditures, while refocussing on immediate needs.”
Prevent Job Loss and Boost Demand through Fiscal Stimulus, Tax Waivers, and Rate Cuts
The Government has taken positive steps in ensuring this. Rs 1,70,000 crore worth of schemes was announced by Finance Minister Nirmala Sitharaman last month that focused on providing food security to the poor and providing money in their hands (DBT) to fight the impact of Covid-19.
This is looked upon as a safeguard measure and a further stimulus is awaited which, sources close to the finance ministry say, will be bigger than Rs 1,70,000 crore and will focus on the demand and supply-side issues that India faces now. The second stimulus is also expected to address the concerns of India Inc. and the SME segment.
Without intervention, many industries, especially smaller businesses will suffer huge losses that will result in job losses and eventually a large population will slip below the poverty line. Moreover, businesses will also have to readjust to new ways of functioning.
The Government is taking steps to boost demand and put money in the hands of its people by returning advanced tax and giving tax breaks to tax-payers and also announce relief on duty on items of consumption.
RBI Steps In
On the request of the Indian Government, the RBI has implemented a series of emergency measures that are aimed at maintaining liquidity in the system and to assist lenders to cope with the present crisis.
Heeding the urges of the Government and the cash strapped market, RBI unrolled moratorium of a few months on the payment of equated monthly instalments (EMIs) and loan repayments.
The RBI has also stepped in time with rate cuts that will inject cash flow into the market and boost demand indirectly. Repo rate was cut by a substantial 75 basis points to bring it to the lowest ever 4.4 per cent from 5.15 per cent. The reverse repo rate has also been reduced by 90 basis points to 4 per cent in a bid to maintain financial stability and revive growth. Subsequently, interest rates of all small saving schemes were also reduced. The Central Bank is likely to ease bad-loan classification rules and allow banks to raise their lending ceiling to bail the companies out of this crisis.
Targeted Stimulus for India Inc. – Real Estate, IT, and Travel Industries
An additional financial stimulus will cover a relief package for the travel and tourism sector that has borne the maximum brunt of the present lockdown.
Caught up in this unprecedented scenario is also the real estate sector that employs huge number of construction labour. Industry experts are looking forward to a set of special guidelines and revised RERA/HIRA in the wake of the COVID-19 situation that will help the real estate sector to tackle this period of difficulty. The industry body NAREDCO has sought relief of $200 billion from the government and a suspension of NCLT activities for the next 6months, in order to tide over huge losses and to protect Indian real estates to be taken over by foreign investors. (source: ET Realty)
Experts are also mulling a temporary/gradual lift of the lockdown at the construction sites so that work can resume and wages can be paid to those labours who need it the most.
NASSCOM, the industry body for IT in India has asked the government for a financial relief package so companies of Business Process Management (BPM) and Global in-house Centres (GICs) could save employees from losing jobs. Lockdown has forced many IT and BPM and GIC companies to bench their employees.
Like every crisis presents itself with opportunities, India can also look at the COVID-19 lockdown crisis to issue sweeping reforms to fix ailing industries and attract more foreign investment. As suggested by experts this can be achieved by liberalisation and deepening of financial markets and by infusing reforms in the banking and the farm sectors.
All is not lost as the COVID-19 crisis may be a boon in disguise for India’s manufacturing sector. Back in July last year, as many as 50 companies were reportedly willing to pull out their manufacturing units from China in the wake of the trade war between the USA and China. Taking things a step forward, the impact of COVID-19 crisis can result in an exodus of many manufacturing industries from China with multinational companies looking to diversify their supply chains away from that country. India can come up as a viable alternative, experts believe, due to its land and labour availability. But we need to act fast and we need solid, structured and intervening reforms across Indian sectors to see us through these tough times.