FOCUS JULY 2020
ECONOMY IN TIMES OF PANDEMIC
On 24th March, Prime Minister Narendra Modi, in an address to the nation announced lockdown for the country as a prelude to facing the Corona pandemic head-on, beginning from midnight. So the country had hardly 4 hours to attend to essentials. Whether it was right or wrong, is a matter which has lost its relevance to-day as 3 months have already passed and the unprecedented chaos of migrant labourers spread all over the country have travelled back to their homes. As of now, things have fairly settled down, but the painful memory of trials and tribulations suffered by the jobless labourers attempting valiantly to make it back to their homes, shall remain etched in the national consciousness for a long time to come.
Economic disruption that came about due to the lock down caused unprecedented uncertainties to a vast section of Indians especially those living on daily and monthly wages. In a country where easily over 70% are in this category, the resultant deprivation was humungous. Addressing a webinar of entrepreneurs and industry executives, NR Narayana Murthy, of Infosys glory, had reportedly remarked “Lengthy lockdown will kill more people than Covid”. For sure India could see more deaths due to hunger than from the dreaded pandemic if lockdown continues indefinitely.
Reacting positively to the evolving situation, different states, depending upon its management skills and the improvement on the ground did open up slowly and steadily under the overall leadership of central government. It is true that in a country like India with the kind of numbers, some 1350 billion, it is certainly not giving to be easy. So there has to be an acceptance of NEW NORMAL. Slowly the entire economy may have to be open sooner than expected taking into account that Corona virus shall stay much longer than previously thought.
If the acceptance of the dreaded virus, which travelled from Wuhan in China, across the wide world, as a contemporary happening, then its socio-medical management will see changes, as countries come to terms with its inevitable longevity. Because death as an ultimate event in an individual’s life, has been around in different forms and in much greater numbers than this Corona virus driven Covid 19 pandemic.
However what is of relevance and therefore of importance is the understanding of economic fallout of this pandemic and how world in general and each country in particular have responded to the evolving health scenario.
Coming to India, it is true that, the pandemic had a devastating effect on millions of Indians, dependent on jobs which gave them daily, monthly wages. So there had to be opening of economy and monetary support to different sectors of the economy. While GDP growth has certainly got affected to irrepairable extent even in the medium term, if not the long term, the governments, as the prime-mover of the economic engine of the country has to take aggressive proactive and imaginative steps.
It is true that India has been passing through some kind of a crisis for varieties of reasons including probably policy paralysis, since sometime before the virus arrived on the scene. There has been a lack of aggregate demand. We are all aware that most automobile manufacturing companies are having surplus inventory and factories are running idle which inevitably has led to some workmen layoffs. We all know crisis normally hit the working class the most, especially those in the lower rung of the employment ladder, the unskilled and low end self employed population. They have to be provided with immediate avenues for useful and gainful occupancy, especially with lockdown following the corona pandemic.
In India up to 53% of businesses have specified a certain amount of impact of shutdowns caused due to COVID-19 on operations, as per a FICCI survey in March. By 24 April the unemployment rate had increased nearly 19 % within a month, reaching 26% unemployment across India, according to the ‘ Centre for Monitoring Indian Economy’. Around 14 crores Indians lost employment during the lockdown. More than 45% households across the nation reported an income drop as compared to the previous year. Various businesses such as hotels and airlines cut salaries and laid off employees. Revenue of transport companies such as Ola Cabs went down nearly 95% in March- April resulting in 1400 layoffs. It was estimated that the loss to the tourism industry will be 15,000 crore (US$2.1 billion) for March and April alone. CII, ASSOCHAM and FAITH estimate that a huge chunk of the workforce involved with tourism in the country faces unemployment. Live events industry saw an estimated loss of 3,000 crore (US$420 million).
The announcement of Rs. 20 lakh package by the central government was with this intention in mind, to put some expendable money in the hands of this section of our population, since it is demand that drives the engine of supplies and therefore economic activity and possibly development.
However even before the package was declared open for public participation, there have been dissenting voices in the public spaces as to ‘why the stimulus won’t work’. This is primarily because the package is directed largely towards making it easier for industry to borrow from banks. This facility of easier borrowing has been extended, in the package, to MSMEs and even small time vendors on street corners. Thus the monetary impact directly due to the packages is only around 10% of the package announced by Prime Minister Modi. In other words only about Rs.2 lakh crore may be additionally available due to this package and not the 20 lakh crores as it was made out to be. Of course it is true that there will still be increased monetary impact due to the increased easier lending norms envisaged in the package, while it can also lead to stressed loans since these advances are being made on the existing collaterals without additional security unless some kind of due diligence is exercised by lending institutions and there is commitment by the borrower to remain accountable for the borrowed amount.
The flip side is, Corona itself generated opportunities for manufacture of drugs health supplements, medicinal preparations, masks. PPEs, and all other paraphernalia that were needed in the management of the pandemic.
It also helped the exponential growth of e-commerce, due to lockdown. Reportedly it has opened up huge possibility of placements of youth with knowledge of digital skills. Thus there have been emerging encouraging scenes in the employment market. We do hope, Slow & Steady shall win the race and country will emerge better and stronger in coming months.
To broad base our observation on the economy we have asked some of our eminent readers to share their thoughts on the subject. Following pages have their take on the Economy In Times of Pandemic.
INDIAN ECONOMY – OLD BIG MESS YET A POWER TO BEGUILE US
V.K. Talithaya
Calling the emerging economic scenario 90% economy, in one of its recent issues The Economist said, “In many things 90% is just fine; in an economy it is miserable…The missing bits (10%) include large chunks of everyday life”. In the US, for example, a plunge of 10% of GDP would be the largest since World War II.
What about India? India’s economy was already in distress before Covid19 struck the country. India’s GDP growth was faltering in the last two years and shrank from a trophy winning 8.3 per cent to 4.2 per cent in 2020. The difficult situation of an already slowing down economy is now in throes of a massive shock from the economic impact of Covid19. As a result what we are discussing today is not about shrinkage in GDP, but about loss of GDP; in other words negative growth. A ten percentage shrinkage in GDP may look small. But its impact on our day-to-day life can be seen all around us. Discretionary spending such as eating out, family entertainment, holidays and travels, functions, even newspapers come under the chopping block of the family budget, not to speak of similar budget cutting by business organizations, government departments etc. Even as early as March 20, while travelling in Uber taxi the taxi driver was complaining that I was his first customer in the previous one week. The economic impact of the slowdown plus Covid19 affects the poorest the most, reminding us of those in the bottom of the pyramid, courtesy C K Prahalad!
Let us look at some figures. According to the Centre for Monitoring Indian Economy, the number of people working in India fell to a little more than 28 crores in April compared to 40 crores a year ago. There was a little recovery in May. In June, sequel to the lifting of lock-down unemployment rate moved down to 8 per cent from 23 per cent in earlier months. It is quite likely that due to the grim economic situation many people might have returned to their jobs or to any jobs at much lower wages. In times like this any job may look better than no jobs.
Moody’s downgraded India’s rating to a shade above junk status. Moody’s forecast the economy to grow at -4 per cent this year. Another rating agency, S&P forecasts India’s growth at -5 per cent this year. But some of our own former government advisors are more pessimistic about the economy. According to Pronob Sen, former Chief Statistician of government of India our GDP growth will fall to as much as -12.5 per cent. Aravind Subramanian, former Chief Economic Advisor to government of India thinks it will be at -8 per cent. However, the latest forecast of IMF puts India’s GDP growth at -4 per cent for the current year and mercifully at 6 per cent for next year.
Recovery of the economy looks a little far. A look at some of our industrial areas brings us close to the stark reality of partially operating or closed MSMEs and a tattered supply-chain and missing workforce. Migrant labourers who returned to their villages are reluctant to return, at least for the time being. The fear of resurgence of Covid19 pandemic will keep them back for quite some time. Many small, medium and even large units are operating much below their capacity. In spite of wage cuts and other measures for saving costs cash crunch stares them. Keeping their operations going at the current rate is the sure way to lose cash and get into deeper financial mess, as one MSME owner fears.
In the midst of this grim situation some green shoots are visible. Auto sales which was zero in April is picking up since. Logistics and transport sectors are getting back to life fast. E-Waybills have tripled to 25.4 million, while petrol and diesel sales have moved up to 83 and 69 per cent of last year’s levels respectively. Truck movement was higher in May compared to April. One of the strong indicators of revival, electricity consumption rose from 2.7 billion units to 3.7 billion units from April to May. Needless to mention that all these figures are yet to reach the pre-covid levels.
A peep into the future takes us to a grimmer situation. The work-from-home phenomenon may continue in much of the IT sector even after Covid19 crisis is over. While it may have some positive fall-outs such as decongestion of city-centres, movement of residences to city outskirts giving a boost to the economies of smaller towns this may also lead to barren office spaces in big cities, unsold real-estate properties, consequential slowdown in other businesses such as restaurants, entertainment etc. City landscapes may change in our country for ever. And, with that lifestyle of people also may change. Investment will shift from corporations and organizations to households who will need more space to accommodate couple to work from home in separate rooms, longer working hours as working from home does not have the constraints of having to rush home and so on. All these will mean that besides social implications there may be economic costs of stress and healthcare.
What about recovery of the economy? The revival package announced by the Finance Minister may take many more months to impact the economy. Some of the old lingering challenges of bank NPAs need to be addressed through structural reforms of the banking sector. The newly minted Atma Nirbhar policy of the Prime Minister may need to be fine tuned to ensure that it does not turn out to be the age old self-sufficiency slogan of the sixties and seventies. Atma Nirbhar should be seen as self-reliance. That means we will not turn our country to autarky, but will continue to import what we need and pay for it by exporting what we can and should. Atma Nirbhar should not mean denial of comparative advantage. Our policies need to address the issue of improving our competitiveness through higher productivity, world-class quality, work ethic and massive infrastructure creation. Only these can make Atama Nirbhar a reality. But this needs imaginative policy changes. No wonder, it may be too much to expect from a chapprassi - obsessed bureaucracy, a judiciary ossified but expanding (adding more judges!) judiciary reluctant to change its systems and a corrupt and self-serving political class which thrives on people’s poverty. But expect we must lest the absence of expectation will deny us the power to bring about reform and change. Reform is the crying need to face the post Covid19 crisis. Reform need to focus on rural employment in agriculture, downstream industries such as food processing and storage and rural infrastructure building. Labour law reform to make our industries more productive, structural reform to improve ease of doing business and improving competitiveness and finally employment generation in infrastructure, MSMEs are other areas of policy focus.
Albeit slowly, reform and change are taking place. Like in a kaleidoscope we see many colours and shapes, but we cannot fix our sight on any one thing, many changes are taking place but to what effect we cannot figure out. Urgency and focus is the key. We opened this piece with a quote from The Economist. It may not be out of place to end this with another which says, “India like a Monet painting, up close it is a big old mess. But from afar it still has the power to beguile us”.
The Author is a former Sr. V. P. (MRPL).
THE ECONOMIC COST OF COVID-19 ON INDIAN ECONOMY
-Dr. K. Shivashankara Bhat
The Covid-19 pandemic has hit the world at a scale and speed that we have only seen so far in doomsday movies. It imposed two kinds of shocks on all countries viz. a health shock and an economic shock. This crisis has a great fear to mankind not only due to health ground but also due to global economic recession. Almost every sector in India is facing financial crunch and if it continues further things can move from bad to worse. It has presented challenges and threats to the Indian economy causing a wide mismatch between demand and supply elements which derails India’s growth journey.
Covid 19 will change the way world works just like the great depression, 2008 financial crash did in the past. The question on everyone’s mind is would things go back to normal? Unlike during 20th century crisis, today given the severity of the crisis, the Central Govt. has responded positively and aggressively to tackle the crisis by extending financial support and therefore things will go back to normal provided the people adhere to the preventive measures announced by the Govt. The fiscal and monetary stimulus unveiled will start to work sooner than expected. The P.M. Mr. Modi unveiled a Rs.20 lakh crore package, amounting to around 10% of Indian GDP – one of the largest stimulus packages, which raise hopes of a speedy economic recovery. According to UNCTAD in its report, “The Covid-19 shock to developing countries has predicted that major economies least exposed to recession would be China and India. So according to the present situation it seems that the course of economic recovery in India will be smoother and faster than other developed countries. Thanks to Modi Govt. for fiscal and monetary stimulus.
Earlier, Indian economy was experiencing a slowdown in demand side but now both demand and supply have been disrupted. The factors through which the impact will get transmitted to output growth are external supply and demand constraints due to global recession and disruption of global supply chains, domestic supply disruption etc. The economic shock will have impact on both formal and informal sectors in India.
India’s economy is the fifth largest in the world with a GDP of $2.94 trillion making India third biggest contributor to global GDP. But due to weak investment and slower demand growth India’s real GDP was decelerating in the financial year 2019-20 and outbreak of covid 19 created fresh challenges to the country. Steps taken to restrict the speed of pandemic like lockdown of the country brought economic activities to a standstill and affected severely both on consumption and investments although lockdown was inevitable.
The Organization for Economic Co-operation and Development (OECD) report highlights that the lockdown has taken heavy toll on the economy, with upto two-thirds of activity either shutdown or working at reduced pace. The Index of Industrial production (IIP) crashed to 56.3 in April 2020 from 126.5 a year before, registering a record 55.5% contraction due to covid induced nationwide lockdown. The private consumption, investment and external trade got affected very badly. Abrupt closure of Urban activity resulted in a fall in consumption of non-essential goods. Demand side impact on tourism, hospitality and aviation are among the worst affected sectors that are facing the maximum burnt of this crisis due to Corona induced travel restrictions. Consumption is getting affected due to job losses and decline in income levels of people particularly daily wage earners due to contraction in several sectors including retail, construction, entertainment etc.
This crisis has hit very severely the informal sector workers since they are deprived of paid leaves and social security benefits. Based on recent studies, it is estimated that there is a job loss of 40 million people in the country, mostly in the unorganized sectors. A notable image of India in 2020 pandemic will be the migrant workers, who reduced to being without job, without income, without shelter and without food were forced to trudge hundreds of kilometers, desperated to go back to their ‘homes’. Modi Govt. has decided to provide free food for migrants to the tune of 5 kgs of wheat or rice per person and 1kg channa per family per month for next two months through State Govts. This entails Rs.3500 crore for the Govt and is likely to benefit around 8 crore migrants.
Micro small and medium enterprises (MSMEs) in India contributes a very large share about 35% to GDP and also provide employment to 114 million people. A study by All India Manufacturers Organization estimates that about a quarter of 75 million MSME’s in India will face closure if the lockdown goes beyond 8 weeks. Thanks to RBI as it has announced a three month moratorium on repayment of term loans and a reduction in the repo rate as relief measures. Collateral free loan of Rs.3 lakh crores for MSMEs - a move that will enable 45 lakh units to restart work and save jobs. The Central Govt. has revised the very definition of MSMEs the move will allow MSMEs to aim for expansion without losing benefits. New definition : Micro units with investment upto Rs.1 crore, turnover upto Rs.5 crore. Small units with investment upto Rs.10 crore, turnover upto Rs.50 crore. Medium units with investment upto Rs.20 crore, turnover upto Rs.100 crore.
There are enough debates going on in the country – whether India should focus on lives or livelihood and I feel the Govt has to focus on both within the constraints of our economics and healthcare challenges. With GDP growth rate crashing to a six year low of 4.5% and non performing assets rising to 10%, India needs to be innovative in the coming months to have V-shaped recovery. The stimulus announced by the Govt. is at best a temporary measure to lift the economy from the clutches of covid pandemic. The real impetus which can spur the economy towards real growth depends upon a huge injection of funds into infrastructure projects both in Urban and Rural India in line with Keynesian theory.
Depression can be overcome by pumping more and more money into the economy which enhances purchasing power in the hands of the people (JM Keynes). So it is imperative to ensure that through adequate investments there is a flow of funds into people’s hands that is needed at large scale not only to alleviate the distress but also to boost the economy. No amount of loans to industry are going to help the economy unless demand is created by increasing purchasing power in the hands of people. Why should the entrepreneurs – big or small – restart or increase production unless there is nobody to buy their products?
Author is former Principal, Govinda Dasa College.
On 24th March, Prime Minister Narendra Modi, in an address to the nation announced lockdown for the country as a prelude to facing the Corona pandemic head-on, beginning from midnight. So the country had hardly 4 hours to attend to essentials. Whether it was right or wrong, is a matter which has lost its relevance to-day as 3 months have already passed and the unprecedented chaos of migrant labourers spread all over the country have travelled back to their homes. As of now, things have fairly settled down, but the painful memory of trials and tribulations suffered by the jobless labourers attempting valiantly to make it back to their homes, shall remain etched in the national consciousness for a long time to come.
Economic disruption that came about due to the lock down caused unprecedented uncertainties to a vast section of Indians especially those living on daily and monthly wages. In a country where easily over 70% are in this category, the resultant deprivation was humungous. Addressing a webinar of entrepreneurs and industry executives, NR Narayana Murthy, of Infosys glory, had reportedly remarked “Lengthy lockdown will kill more people than Covid”. For sure India could see more deaths due to hunger than from the dreaded pandemic if lockdown continues indefinitely.
Reacting positively to the evolving situation, different states, depending upon its management skills and the improvement on the ground did open up slowly and steadily under the overall leadership of central government. It is true that in a country like India with the kind of numbers, some 1350 billion, it is certainly not giving to be easy. So there has to be an acceptance of NEW NORMAL. Slowly the entire economy may have to be open sooner than expected taking into account that Corona virus shall stay much longer than previously thought.
If the acceptance of the dreaded virus, which travelled from Wuhan in China, across the wide world, as a contemporary happening, then its socio-medical management will see changes, as countries come to terms with its inevitable longevity. Because death as an ultimate event in an individual’s life, has been around in different forms and in much greater numbers than this Corona virus driven Covid 19 pandemic.
However what is of relevance and therefore of importance is the understanding of economic fallout of this pandemic and how world in general and each country in particular have responded to the evolving health scenario.
Coming to India, it is true that, the pandemic had a devastating effect on millions of Indians, dependent on jobs which gave them daily, monthly wages. So there had to be opening of economy and monetary support to different sectors of the economy. While GDP growth has certainly got affected to irrepairable extent even in the medium term, if not the long term, the governments, as the prime-mover of the economic engine of the country has to take aggressive proactive and imaginative steps.
It is true that India has been passing through some kind of a crisis for varieties of reasons including probably policy paralysis, since sometime before the virus arrived on the scene. There has been a lack of aggregate demand. We are all aware that most automobile manufacturing companies are having surplus inventory and factories are running idle which inevitably has led to some workmen layoffs. We all know crisis normally hit the working class the most, especially those in the lower rung of the employment ladder, the unskilled and low end self employed population. They have to be provided with immediate avenues for useful and gainful occupancy, especially with lockdown following the corona pandemic.
In India up to 53% of businesses have specified a certain amount of impact of shutdowns caused due to COVID-19 on operations, as per a FICCI survey in March. By 24 April the unemployment rate had increased nearly 19 % within a month, reaching 26% unemployment across India, according to the ‘ Centre for Monitoring Indian Economy’. Around 14 crores Indians lost employment during the lockdown. More than 45% households across the nation reported an income drop as compared to the previous year. Various businesses such as hotels and airlines cut salaries and laid off employees. Revenue of transport companies such as Ola Cabs went down nearly 95% in March- April resulting in 1400 layoffs. It was estimated that the loss to the tourism industry will be 15,000 crore (US$2.1 billion) for March and April alone. CII, ASSOCHAM and FAITH estimate that a huge chunk of the workforce involved with tourism in the country faces unemployment. Live events industry saw an estimated loss of 3,000 crore (US$420 million).
The announcement of Rs. 20 lakh package by the central government was with this intention in mind, to put some expendable money in the hands of this section of our population, since it is demand that drives the engine of supplies and therefore economic activity and possibly development.
However even before the package was declared open for public participation, there have been dissenting voices in the public spaces as to ‘why the stimulus won’t work’. This is primarily because the package is directed largely towards making it easier for industry to borrow from banks. This facility of easier borrowing has been extended, in the package, to MSMEs and even small time vendors on street corners. Thus the monetary impact directly due to the packages is only around 10% of the package announced by Prime Minister Modi. In other words only about Rs.2 lakh crore may be additionally available due to this package and not the 20 lakh crores as it was made out to be. Of course it is true that there will still be increased monetary impact due to the increased easier lending norms envisaged in the package, while it can also lead to stressed loans since these advances are being made on the existing collaterals without additional security unless some kind of due diligence is exercised by lending institutions and there is commitment by the borrower to remain accountable for the borrowed amount.
The flip side is, Corona itself generated opportunities for manufacture of drugs health supplements, medicinal preparations, masks. PPEs, and all other paraphernalia that were needed in the management of the pandemic.
It also helped the exponential growth of e-commerce, due to lockdown. Reportedly it has opened up huge possibility of placements of youth with knowledge of digital skills. Thus there have been emerging encouraging scenes in the employment market. We do hope, Slow & Steady shall win the race and country will emerge better and stronger in coming months.
To broad base our observation on the economy we have asked some of our eminent readers to share their thoughts on the subject. Following pages have their take on the Economy In Times of Pandemic.
INDIAN ECONOMY – OLD BIG MESS YET A POWER TO BEGUILE US
V.K. Talithaya
Calling the emerging economic scenario 90% economy, in one of its recent issues The Economist said, “In many things 90% is just fine; in an economy it is miserable…The missing bits (10%) include large chunks of everyday life”. In the US, for example, a plunge of 10% of GDP would be the largest since World War II.
What about India? India’s economy was already in distress before Covid19 struck the country. India’s GDP growth was faltering in the last two years and shrank from a trophy winning 8.3 per cent to 4.2 per cent in 2020. The difficult situation of an already slowing down economy is now in throes of a massive shock from the economic impact of Covid19. As a result what we are discussing today is not about shrinkage in GDP, but about loss of GDP; in other words negative growth. A ten percentage shrinkage in GDP may look small. But its impact on our day-to-day life can be seen all around us. Discretionary spending such as eating out, family entertainment, holidays and travels, functions, even newspapers come under the chopping block of the family budget, not to speak of similar budget cutting by business organizations, government departments etc. Even as early as March 20, while travelling in Uber taxi the taxi driver was complaining that I was his first customer in the previous one week. The economic impact of the slowdown plus Covid19 affects the poorest the most, reminding us of those in the bottom of the pyramid, courtesy C K Prahalad!
Let us look at some figures. According to the Centre for Monitoring Indian Economy, the number of people working in India fell to a little more than 28 crores in April compared to 40 crores a year ago. There was a little recovery in May. In June, sequel to the lifting of lock-down unemployment rate moved down to 8 per cent from 23 per cent in earlier months. It is quite likely that due to the grim economic situation many people might have returned to their jobs or to any jobs at much lower wages. In times like this any job may look better than no jobs.
Moody’s downgraded India’s rating to a shade above junk status. Moody’s forecast the economy to grow at -4 per cent this year. Another rating agency, S&P forecasts India’s growth at -5 per cent this year. But some of our own former government advisors are more pessimistic about the economy. According to Pronob Sen, former Chief Statistician of government of India our GDP growth will fall to as much as -12.5 per cent. Aravind Subramanian, former Chief Economic Advisor to government of India thinks it will be at -8 per cent. However, the latest forecast of IMF puts India’s GDP growth at -4 per cent for the current year and mercifully at 6 per cent for next year.
Recovery of the economy looks a little far. A look at some of our industrial areas brings us close to the stark reality of partially operating or closed MSMEs and a tattered supply-chain and missing workforce. Migrant labourers who returned to their villages are reluctant to return, at least for the time being. The fear of resurgence of Covid19 pandemic will keep them back for quite some time. Many small, medium and even large units are operating much below their capacity. In spite of wage cuts and other measures for saving costs cash crunch stares them. Keeping their operations going at the current rate is the sure way to lose cash and get into deeper financial mess, as one MSME owner fears.
In the midst of this grim situation some green shoots are visible. Auto sales which was zero in April is picking up since. Logistics and transport sectors are getting back to life fast. E-Waybills have tripled to 25.4 million, while petrol and diesel sales have moved up to 83 and 69 per cent of last year’s levels respectively. Truck movement was higher in May compared to April. One of the strong indicators of revival, electricity consumption rose from 2.7 billion units to 3.7 billion units from April to May. Needless to mention that all these figures are yet to reach the pre-covid levels.
A peep into the future takes us to a grimmer situation. The work-from-home phenomenon may continue in much of the IT sector even after Covid19 crisis is over. While it may have some positive fall-outs such as decongestion of city-centres, movement of residences to city outskirts giving a boost to the economies of smaller towns this may also lead to barren office spaces in big cities, unsold real-estate properties, consequential slowdown in other businesses such as restaurants, entertainment etc. City landscapes may change in our country for ever. And, with that lifestyle of people also may change. Investment will shift from corporations and organizations to households who will need more space to accommodate couple to work from home in separate rooms, longer working hours as working from home does not have the constraints of having to rush home and so on. All these will mean that besides social implications there may be economic costs of stress and healthcare.
What about recovery of the economy? The revival package announced by the Finance Minister may take many more months to impact the economy. Some of the old lingering challenges of bank NPAs need to be addressed through structural reforms of the banking sector. The newly minted Atma Nirbhar policy of the Prime Minister may need to be fine tuned to ensure that it does not turn out to be the age old self-sufficiency slogan of the sixties and seventies. Atma Nirbhar should be seen as self-reliance. That means we will not turn our country to autarky, but will continue to import what we need and pay for it by exporting what we can and should. Atma Nirbhar should not mean denial of comparative advantage. Our policies need to address the issue of improving our competitiveness through higher productivity, world-class quality, work ethic and massive infrastructure creation. Only these can make Atama Nirbhar a reality. But this needs imaginative policy changes. No wonder, it may be too much to expect from a chapprassi - obsessed bureaucracy, a judiciary ossified but expanding (adding more judges!) judiciary reluctant to change its systems and a corrupt and self-serving political class which thrives on people’s poverty. But expect we must lest the absence of expectation will deny us the power to bring about reform and change. Reform is the crying need to face the post Covid19 crisis. Reform need to focus on rural employment in agriculture, downstream industries such as food processing and storage and rural infrastructure building. Labour law reform to make our industries more productive, structural reform to improve ease of doing business and improving competitiveness and finally employment generation in infrastructure, MSMEs are other areas of policy focus.
Albeit slowly, reform and change are taking place. Like in a kaleidoscope we see many colours and shapes, but we cannot fix our sight on any one thing, many changes are taking place but to what effect we cannot figure out. Urgency and focus is the key. We opened this piece with a quote from The Economist. It may not be out of place to end this with another which says, “India like a Monet painting, up close it is a big old mess. But from afar it still has the power to beguile us”.
The Author is a former Sr. V. P. (MRPL).
THE ECONOMIC COST OF COVID-19 ON INDIAN ECONOMY
-Dr. K. Shivashankara Bhat
The Covid-19 pandemic has hit the world at a scale and speed that we have only seen so far in doomsday movies. It imposed two kinds of shocks on all countries viz. a health shock and an economic shock. This crisis has a great fear to mankind not only due to health ground but also due to global economic recession. Almost every sector in India is facing financial crunch and if it continues further things can move from bad to worse. It has presented challenges and threats to the Indian economy causing a wide mismatch between demand and supply elements which derails India’s growth journey.
Covid 19 will change the way world works just like the great depression, 2008 financial crash did in the past. The question on everyone’s mind is would things go back to normal? Unlike during 20th century crisis, today given the severity of the crisis, the Central Govt. has responded positively and aggressively to tackle the crisis by extending financial support and therefore things will go back to normal provided the people adhere to the preventive measures announced by the Govt. The fiscal and monetary stimulus unveiled will start to work sooner than expected. The P.M. Mr. Modi unveiled a Rs.20 lakh crore package, amounting to around 10% of Indian GDP – one of the largest stimulus packages, which raise hopes of a speedy economic recovery. According to UNCTAD in its report, “The Covid-19 shock to developing countries has predicted that major economies least exposed to recession would be China and India. So according to the present situation it seems that the course of economic recovery in India will be smoother and faster than other developed countries. Thanks to Modi Govt. for fiscal and monetary stimulus.
Earlier, Indian economy was experiencing a slowdown in demand side but now both demand and supply have been disrupted. The factors through which the impact will get transmitted to output growth are external supply and demand constraints due to global recession and disruption of global supply chains, domestic supply disruption etc. The economic shock will have impact on both formal and informal sectors in India.
India’s economy is the fifth largest in the world with a GDP of $2.94 trillion making India third biggest contributor to global GDP. But due to weak investment and slower demand growth India’s real GDP was decelerating in the financial year 2019-20 and outbreak of covid 19 created fresh challenges to the country. Steps taken to restrict the speed of pandemic like lockdown of the country brought economic activities to a standstill and affected severely both on consumption and investments although lockdown was inevitable.
The Organization for Economic Co-operation and Development (OECD) report highlights that the lockdown has taken heavy toll on the economy, with upto two-thirds of activity either shutdown or working at reduced pace. The Index of Industrial production (IIP) crashed to 56.3 in April 2020 from 126.5 a year before, registering a record 55.5% contraction due to covid induced nationwide lockdown. The private consumption, investment and external trade got affected very badly. Abrupt closure of Urban activity resulted in a fall in consumption of non-essential goods. Demand side impact on tourism, hospitality and aviation are among the worst affected sectors that are facing the maximum burnt of this crisis due to Corona induced travel restrictions. Consumption is getting affected due to job losses and decline in income levels of people particularly daily wage earners due to contraction in several sectors including retail, construction, entertainment etc.
This crisis has hit very severely the informal sector workers since they are deprived of paid leaves and social security benefits. Based on recent studies, it is estimated that there is a job loss of 40 million people in the country, mostly in the unorganized sectors. A notable image of India in 2020 pandemic will be the migrant workers, who reduced to being without job, without income, without shelter and without food were forced to trudge hundreds of kilometers, desperated to go back to their ‘homes’. Modi Govt. has decided to provide free food for migrants to the tune of 5 kgs of wheat or rice per person and 1kg channa per family per month for next two months through State Govts. This entails Rs.3500 crore for the Govt and is likely to benefit around 8 crore migrants.
Micro small and medium enterprises (MSMEs) in India contributes a very large share about 35% to GDP and also provide employment to 114 million people. A study by All India Manufacturers Organization estimates that about a quarter of 75 million MSME’s in India will face closure if the lockdown goes beyond 8 weeks. Thanks to RBI as it has announced a three month moratorium on repayment of term loans and a reduction in the repo rate as relief measures. Collateral free loan of Rs.3 lakh crores for MSMEs - a move that will enable 45 lakh units to restart work and save jobs. The Central Govt. has revised the very definition of MSMEs the move will allow MSMEs to aim for expansion without losing benefits. New definition : Micro units with investment upto Rs.1 crore, turnover upto Rs.5 crore. Small units with investment upto Rs.10 crore, turnover upto Rs.50 crore. Medium units with investment upto Rs.20 crore, turnover upto Rs.100 crore.
There are enough debates going on in the country – whether India should focus on lives or livelihood and I feel the Govt has to focus on both within the constraints of our economics and healthcare challenges. With GDP growth rate crashing to a six year low of 4.5% and non performing assets rising to 10%, India needs to be innovative in the coming months to have V-shaped recovery. The stimulus announced by the Govt. is at best a temporary measure to lift the economy from the clutches of covid pandemic. The real impetus which can spur the economy towards real growth depends upon a huge injection of funds into infrastructure projects both in Urban and Rural India in line with Keynesian theory.
Depression can be overcome by pumping more and more money into the economy which enhances purchasing power in the hands of the people (JM Keynes). So it is imperative to ensure that through adequate investments there is a flow of funds into people’s hands that is needed at large scale not only to alleviate the distress but also to boost the economy. No amount of loans to industry are going to help the economy unless demand is created by increasing purchasing power in the hands of people. Why should the entrepreneurs – big or small – restart or increase production unless there is nobody to buy their products?
Author is former Principal, Govinda Dasa College.
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