Towards recovery and growth

In the post corona world, the major concern of governments the world over would be the revival of their economies. The world will not only be dealing with losses of life, fear, and health concerns but also weak business sentiments, low globalization trends and disruptions in supply chains. Hence the governments have already started gearing up for the future; many central banks have reduced their interest rates and other waivers and fiscal packages are announced in order to rescue the economies from falling into recession.

Indian government is also in damage control mode on the economic front which may register a significant decline in growth in the post lockdown period and a fiscal support to the various sectors is the need of the hour. Prime Minister Narendra Modi has already announced a comprehensive package of Rs. 20 lakh crores including the fiscal measures already taken by the government so far. The Prime Minister has also indicated that MSMEs, labour and some high end technology sectors will be the focal point for the government.

These are the steps in the right direction and the government has a tough battle ahead for the next few months where victory can be only ensured by perfect execution of the stated intention. While there can be debates on the sufficiency of the amount of the package but real merit of the fiscal stimulus will lie in the operationalisation of the plan that will be reflected in the achievement of the deliverables.

Also, there is some criticism from the opposite sections on the availability of such a huge amount with the exchequer. This should not deter the government from executing the rescue operation. The government has the power to print money in order to finance its operations and the exceptional situation now demands that it is the right time to do so. One caveat will need to be applied while printing the money – that it does not raise more demand (than the supply) and fuel inflation. If the government uses this newly printed money wisely: to give an impetus to the small manufacturing industry, develop infrastructure and mainly-to drive consumption of the lower sections of the economy, i.e. the workers in low paid jobs, agriculture workers and rural poor, then this fear could be averted. This is because the consumption basket of these people in times of distress would consist mainly of the staple essential items for which the country has plenty of stock. If the government carefully manages the supply chain then the fear of inflation can be averted. Also, their consumption expenditure still remains quite low as compared to urban middle and higher classes. So the danger of fuelling inflation will be low.

The government is serious in cushioning the poor and migrant workers and hence would be bringing reforms in order to shield this vulnerable poor group from decelerating into the poverty trap. This is because landless rural and urban migrant labourers have been the hardest hit in the country during the lockdown period and would also continue to be more vulnerable in the post lockdown period. This is not only due to the slowdown in the economy, but also due to low opportunities of work as employers in industries as well as households would like to cut down on staff in order to grapple with slowing demand and to maintain social distancing.

The country had already seen huge numbers of workers on roads in conditions of hardship and distress attempting to reach their native villages. This class of workers is the most vulnerable group as compared to other economic players like the urban upper/middle class employed in the private or public sector. While, the total size of this workforce is not known but various estimates put the size, to be anywhere, around 400 to 450 million.

These workers have already been out of work for more than two months, and they do not have savings to maintain their basic consumption, so the government is required to provide them with oxygen in the form of hard cash not only now but also in the post Covid times for consumption spending on basic needs like food, healthcare and housing. If they have some land in the villages they might also use the money to buy farm inputs for the next season. Since most of this spending will be done at the local small shops, this would also support these petty businessmen who may otherwise be finding it difficult to stay in business due to reduced demand.

In order to operationalise this and transfer such cash the required infrastructure already exists. There are around 38.25 crore Jan Dhan accounts in the country which mainly cater to the marginalised people in the country. These accounts can be utilised to transfer the amount directly to the affected. Duplication of accounts should be checked by linking them with Aadhar numbers.

This amount should be at least As.. 5000, which is around 50 percent of the National Minimum Wage for an average size Indian family as recommended by the government appointed Sathpathy Committee (The Committee was appointed by the Central Labour Ministry in the year 2017 to make recommendations on National Minimum Wages). Now this would amount to a burden of around Rs. 2.3 lakh crores (which is less than 2 percent of the GDP in 2018-19) on the exchequer. The government has already started the transfer of money to around 20 crore women bank account holders under Pradhan Mantri Garib Kalyan Yojana (PMGKY) which should continue for the time being. The government is also releasing benefits under PM-Kisan. This will give some relief to around 8 crore farmers currently registered under the scheme, although the inclusion criteria of PM-Kisan currently does not include farmers without land ownership, and hence will be excluding around 3 crore of farmers which are currently not registered in the scheme and around 14 crores farm labourers who have no landholding and hence automatically excluded from the scheme.

Next concern for the government would be to provide jobs for these workers in their native places. So now is the time for the revival of the MNREGA and use it to provide money in the hands of the people and also for infrastructure development in the villages.

The Government is keeping the parallel focus on the farm sector which will produce all the essential articles of consumption and good harvest and remunerative prices may well boost the sentiments and the rural economy. Public Distribution System infrastructure may also protect the vulnerable from food security crisis and also provide an outlet for the government to release the food stocks bought from the farmers. Government procurement at the village sites so as to avoid crowding at the mandis will also create demand for workers at the village sites. This will also prevent out-migration of the workers from the villages and maintain social distancing. It is also easier for the workers to survive in their native villages or towns on less money if some basic entitlements are provided by the government.

Since the government has to decide the budget allocation of funds to revive the different sectors, it will be pertinent to provide stimulus packages to those sectors which are firstly essential for producing essential items and secondly, can impact the economic welfare of more people and can provide more jobs even if low paid. So, sectors like automobile and real estate should not be an immediate priority for the government, instead focus should be on MSME, small businessmen and entrepreneurs, for e.g. small food processing industries, basic service providers, petty shops etc. These sectors have the potential to create more jobs in terms of numbers than heavy industry. Also, the demand of basic essential items will be mostly met by these sectors.

The Government will also have to make legislation’s in order to create barriers for the large corporate to enter certain sectors which currently are by and large catered by the MSMEs or cooperatives as these corporate giants with deep pockets and high economies of scale may take a predatory route and may put small entrepreneurs out of businesses which would very much defeat the whole purpose of boosting the small scale sector.

This is also the right time to focus on the growth of the domestic manufacturing industries especially since the government may ban a large number of Chinese goods due to the apprehensions of them being infected. Growth of domestic industries to cater for most of the consumption articles, healthcare and pharma essentials like life saving drugs which we were importing till now, should be given an impetus by the government. These measures would be instrumental to turn the wheels of Indian economy at a considerable pace and lead to achieving economic revival and growth for all, especially the marginalised ones.