The economic impact of the current Corona virus pandemic in India has been largely disruptive. However even after the announcement of the economic package in mid-May, India’s GDP estimates has been downgraded even to negative figures, signaling a deep recession and a dismal scenario. The Centre for Monitoring of Indian Economy said cautioning that uncertainty continues to prevail as the unemployment rate in India continued to be high at 24% in which 27 million youth in age group of 20-30 years lost jobs. CRISIL said that it has predicted the Indian economy to shrink by 5 per cent in the current fiscal because of corona virus lockdown which has curtailed economic activity severely. International Monetary Fund projects India’s growth rate at 1.9% in 2020 and forecasts a global recession due to the current pandemic.
So with the above skeptical prophecy we will remain in the midst of the economic crisis for a longer period of time due to the devastation caused by the unprecedented pandemic. Although it can be seen that both Central and respective State Governments have tried their best to prevent the situation but somehow things have not turned up to their way. So to combat the current economic slowdown the Government has declared a massive package under the banner of “Atmnirbhar Bharat” scheme in which almost 84 per cent of the Rs 20 lakh crore of the package announced by Prime Minister Narendra Modi on May 12 and rolled out by the Finance Minister Nirmala Sitharaman has been largely in the form of loans and other liquidity measures. A break up of the package compiled from the press release on May 13 and 14 reveals that Rs 16,60,050 crore were in the form of loan and other liquidity measures. This means that the actual cost to Government in the Atma Nirbhar package in the form of subsidy or cash outflow is just Rs 3,20,902 crore which is just 16 per cent of the total package.
A recent annual report on Micro, Small and Medium Enterprises (MSME’s) indicates that the MSME contributes to around 30% of India’s GDP, and based on conservative estimates, employs around 50% of industrial workers and as per the relief package it has proposed to be given the collateral free loans and credit guarantees by the government under the“Aatmnirbhar Bharat” scheme. Some of the notable measures announced included Rs 3 lakh crore collateral-free automatic loans, Rs 20,000 crore subordinate debts, and revised definitions of MSMEs and three-month moratorium on debt repayments announced by the RBI for the MSME sector which was a wise decision and argued more should be done. However it must be noted that the MSME sector has already been targeted by the government for a number of years with the schemes like MUDRA of 2015. This sector is heavily indebted and already been distressed due to the previous policy reforms which limit its business like the Goods and Services Tax (GST) and Demonetization etc. It is not clear targeting the MSME sector is the right channel. It is more about reviving demand so that it can lead to an improvement in their business conditions which means stronger growth after this pandemic and ultimately government must be focused on finding ways to provide a Debt relief instead of additional debt.
The Government has also announced various structural reforms during the crisis for the agriculture sector including an outlay of Rs 1.63 lakh crore under the Aatmnirbhar Bharat and also amending the stringent Essential Commodities Act to remove cereals, edible oil, oilseeds, pulses, onions and potato from its purview. The new law will be framed to give farmers the option to choose the market where they want to sell their produce by removing inter-state trade barriers and providing e-trading of agriculture produce and believe that this will remove the License Raj in agriculture sector and ultimately Agriculture Produce Market Committee will be open to competition. This is indeed a very promising attempt to tackle the sluggish agricultural sector because even the LPG policy 1991 didn’t consider the reformation in agricultural sector as it was believed to be a part of State List. A chief Agricultural Scientist “Ashok Gulati” said in an interview “I have been asking for this for 20 years, “At least with corona the reforms’ finally comes in what hasn’t happened in years, it finally happening thanks to the corona virus pandemic. These steps appear to be positive and big bold steps and will take some time to reach on ground. It is also expected that the fruit will start to appear after the gestation period is over. The government should also bring the agricultural laborers in the purview of MGNREGA and workers should be employed for farming and other related activities and wages must be provided as per the MGNREGA scheme which will eventually give financial aid and stability to the farmers.
Amartya Sen, Raghuram Rajan, Abhijit Banerjee rightly said “The surprising loss of income and savings can have serious consequences, even if the meals are secured for now farmers need money to buy seeds and fertilizer for the next planting season; shopkeepers need to decide how they will fill their shelves again”. The government is already having more than three times the “buffer stock norms” which stood of almost a total stock of 77 million tons in March 2020 as per Food Corporation of India. There is a problem of exclusion of substantial fraction of the poor from the Public Distribution System rolls at a larger scale for one reason or another which can be solved through issuing of temporary ration cards perhaps for six months with minimal checks to everyone who wants one and is willing to stand in line to collect their card and their monthly allocations.
The revolutionary economist John Maynard Keynes in his profound work “The General Theory of Employment, Interest and Money “(1936 ) demonstrated that governments has the power to change the harms of capitalism through the sensible injection of money into the economy to generate demands and solve the problem of massive unemployment. The idea of J.M. Keynes “Demand creates its own supply” needs to be utilized regarding the current economic slowdown.
The recent policy reform announcement is primarily targeting the various sectors through loans and other liquidity measures. This will not do the needful as there is enormous lacking of demand due to the current lockdown that ultimately created the formidable problem of unemployment and shortage of cash which is ultimately affecting the MSME and Agriculture and other allied sectors in a big way. So government and policymakers should focus on primary cash transfers in the hands of people so that it can create an efficient demand conditions in the economy. This will certainly work as a multiplier effect on the economy, and would create huge demand which would encourage the industrial production and generate revenue for the government eventually. So government and policymakers should focus on primary cash outflow or cash transfers directly in the hands of people which could be done in the form of “helicopter money “so that it can create an efficient demand conditions in the economy which will eventually help to boost the other sectors.
Sources:
