Now it is official – our economy is performing worse than anticipated earlier, going by the negative growth forecast, a decline of GDP by close to 10 per cent for the current financial year. While a few international bodies have forecast a longer time for the country to revive, the Reserve Bank of India sees a revival kicking in from the first quarter (April-June) of next year.
The International Monetary Fund has slashed down India’s growth to minus 10.3 percent and it feels that still the country, like many others is undergoing the dramatic impact of Covid-19 pandemic. Ominously, as per its forecast, it will take a while for India to move out of this depressed state of economic affairs and may see better tidings after at least one year. And it could be more, its economists have maintained, adding for the time being India should look after its poorest of the poor and the poor, and think about giving direct cash benefits for the people who are adversely affected by the pandemic.
Even for the small and medium industries, that generate employment needed to be given ready money in hand to tide over the bad times rather than the credit support, which the IMF economists say may not be of much help to lift the sector that has been crippled due to the lockdown to contain the pandemic. India faces the challenge of taking care of its poor along with spending on public health programmes on a big scale.
Anecdotal evidence from the field shows that more people are being pushed into extremely trying conditions, with hundreds of thousands of people losing livelihoods and jobs. Despite the best efforts of the Government, the economy is yet to pick up, for obvious reasons that the fear of the unknown continues to haunt the people. Those with savings and the ability to spend are holding on, and investors are too holding back. Slowly but surely, the Government is opening up different sectors of the economy, the latest being the entertainment sector that saw the opening up of movie theatres. But with restrictions, for obvious reasons, so that all precautions are taken to prevent the outbreak and spread of the Coronavirus.
Film theatre owners and even the audiences welcome this development, but response still is a trifle lukewarm reflecting the overall sentiments of the people. Until and unless a definitive and proven cure and vaccine against the Coronavirus is available, it will be difficult to reach pre-pandemic levels of economic activity. Even the world growth is expected to contract by 4.4 percent this year, and may bounce back next year.
Even India would begin to show revival from the first quarter of next year, as per RBI estimates, that is in line with the view of the IMF contained in its World Economic Outlook released a couple of days ago.
But for the present, business activity and consumption are a bit subdued as mentioned earlier, and the absence of direct Government spending (cash transfers to the poor) is another reason for the slower recovery pace. The Government’s stimulus packages contain a slew of indirect support like credit guarantees and infusion of liquidity but clearly are not showing desired results, for the present. Depressed sentiments and uncertainty are taking a toll.
What is a matter of concern is that even if a vaccine is discovered by year-end or early next year, as is being anticipated, economic recovery is not expected to accelerate readily. Economists expect a slow and uneven recovery, because people will take time to become more confident and increase their consumption – of goods and services as also increased investment to cater to a rise in demand for goods and services.
As it is job losses and uncertainties have led to a fall in demand for goods and services, which further affect investment and the circle is complete.
But even in this dismal picture, there are signs of reassuring numbers that tell the tale of recovery that is beginning to show in certain sectors – power consumption, passenger vehicle sales after lockdown restrictions were lifted, in a phased manner.
So, what needs to be done is crystal clear and it is not rocket science. The Government should find money to come out with a fiscal stimulus strong enough to kick up demand in the economy and it is the informal sector, self-employed, labourers and workers, and the MSMEs, who have been the worst affected in the pandemic must form the prime focus of a stimulus.
Like in other countries, the rich in India have gotten richer in the pandemic and can survive the tough times without any assistance. Sectors like IT, Pharmaceuticals, and logistics seem to have done well even during pandemic whereas many other sectors with a predominant presence of MSMEs suffered badly. They are in various stages of opening up and would take some time to begin working to their capacities.
The revival also depends on how quickly supply lines are restored, for companies engaged in manufacturing that are hit by shortage of parts and raw materials.
But on the whole, what is urgently needed is a robust fiscal stimulus by the Government to spur domestic demand and to sustain investment without being over-concerned about the fiscal deficit. The primary focus of fiscal stimulus should be on the informal sectors, micro, small and medium enterprises (MSMEs), the self-employed and casual workers that have been the worst casualty of the COVID-19-induced lockdown and subsequent disruptions.
Another key element for revival is the availability of finance, for companies. Especially those in the MSME sector are struggling for even working capital requirements, and this factor alone can kill many that still have an outside chance of survival if they get help in time.
But it must be understood that the pandemic has also hit the banking sector in ways one cannot imagine. The lockdown to contain the Coronavirus spread has impacted the repayment cycles of the borrowers and thus the banks are seeing a rise in NPAs.
The RBI appointed KV Kamath Committee found that 29.4% of the total banking debt was impacted by the pandemic alone while another 42.1% was already facing stress before the outbreak. In total, 72% debt of the banking sector has been impacted by the pandemic. Given the continuing rise in Covid-19 cases, some borrowers may not be able to meet the strict requirements suggested by the committee and would add to the NPAs in larger numbers.
Can we blame the Government ? Hardly, as it is facing decreasing tax revenues and rising expenditure on health because of the pandemic. So, the Government is under pressure, to perform at a time when the challenge is only mounting.
The writer is a senior journalist tracking social, economic, and political changes across the country. He was associated with the Press Trust of India, The Hindu, Sunday Observer and Hindustan Times. He can be reached on
[email protected] and Twitter handle @kvlakshman