“The crisis consists precisely of the fact that the old is dying and the new cannot be born; in this interregnum, a great variety of morbid symptoms appear.” Antonio Gramsci
The ongoing COVID-19 pandemic is a crisis which will see symptoms and their effects lingering on for a while, given its global scale. The pandemic has brought countries to their knees with little positive news in the short term. Governments across the world are working towards mitigating the effects through fiscal measures. The reality is this will change society, way of life and business in ways we still don’t understand.
India is expecting and hoping to dodge the bullet, of exploding number of infected cases, as compared to some of the developed nations – US, UK and Europe in general, given the timely actions taken by the Central and State Governments and a largely abiding populace.
As per the Oxford Development Institute’s COVID-19 Government Tracker – India has announced the least fiscal stimulus (about 1%) and imposed the strictest policies to counter COVID-19. While the stringent measures to fight COVID-19 are showing results, the long-term economic revival will not be sustainable without increased Government spending to combat the scourge of mass unemployment and loss of livelihood.
Most economists have raised alarm bells for a global recession this year. Indian’s GDP growth is forecasted to be around 2 per cent for the fiscal year ending March 2021 – the slowest growth in the country, over the last 30 years. Additionally, for the first time in the history of the Indian Capital markets, the foreign portfolio investors have sold securities worth INR1 lakh crore in a month. Such fallout mandates early action and measures by the Indian policymakers to arrest the further slide. The complete collapse of markets was saved by the domestic institutions in India, which bought stocks worth INR 55,595 crores, during the same period.
Now, with Government (private sector needs to do its bit) needs to act on this and help avoid a collapse of the system (and long term impact) amid the almost standstill economic activity. While there will always be worry if unplanned fiscal stimuli can push hyperinflation, given the unprecedented times we are in, the Government would have to increase the Debt to GDP and fiscal deficit over the next 2-3 years for us to address this never-seen-before disaster. Countries across the world are letting go of the debt to GDP ratio to support citizens and businesses, some offering stimulus as much as 15-20% of their GPD. In India, I believe, such significant stimuli are neither possible and also stimulus has to balance the strength of the lockdown that Indian Government took, for which it does deserve praise and will also determine the extent of financial support that the Government will have to provide.
With the world projected to go into recession, our economic response needs to consider the various realities relating to India. Indian companies would look at modifying business models that infuse more technology and reduce fixed costs. In the short term, capital expenditure will take hit and organizations would see employee rationalization in the formal sector with real estate already going through a tough time likely to see further headwinds.
Hopefully, As the global lockdowns start easing over the next few weeks, and we try and jumpstart the economy, we do need to consider a) Government and Sovereigns will crowd out Cheaper Money, b) India has emerged as a large consumption economy with a broad base which spends all it earns and has got impacted the most and needs the most support, c) India with growing start-up and Innovation culture has an opportunity, d) Savings are likely to see an uptick, as a middle and high-income group, recover from the mental agony of seeing/perceive a decline in wealth, e) opportunity for India to increase its share in exports in short to medium term (predicated on how long the lockdown continues in other parts of the world – especially Europe and US) and massive stimulus packages in Europe and US likely to drive short term consumption f) Moderated oil process, and g) potential dumping by China as its manufacturing base starts to ramp up.
We have already seen the Indian Government and RBI take measure we did not think possible to redress the immediate fallout of the lockdown. While more and sectoral short term measures are required especially for Aviation, Transport, Automotive, Hospitality, EOUs, MSMEs, Retail and construction, India should focus on identifying strategic initiatives to support for the revival of demand that can help renew the scale of operations and maintain stability across industries. This needs to consider a) sectoral approach to manage the impact on working capital and capital expansion plans including allowing the deferment of mandatory capital expansion plans, b) concessional consumer financing for example ailing auto sector can be supported by offering low-interest auto loans for vehicles below a price range of INR10 lakh, c) While the global tourism sector is at a standstill, owing to global lockdowns and travel restrictions, India should create a focused plan to revive domestic tourism. The Government should consider expanding LTC and domestic airfare concessions for domestic travel including GST benefits for hotels for consumers (other than business travel), d) To drive demand in the housing sector, a special window for housing finance companies should provide significant concessional finance to home buyers that are ready to be delivered in the next six months, e) Credit enhancement and Guarantee Fund for large Urban Local bodies to take up infrastructure funds that can be completed in the next three years, f) Pooling of clear title lands from specified ministry (HRD, Labour, Minority, etc.) can drive rental housing, co-living and student hostels in PPP basis with minimum yield return, and finally g) The significantly hurt export-oriented units would need enhanced export credit to tide over till global markets open up and trade picks up.
When written in Chinese, ‘crisis’ is represented by two characters – danger and opportunity. It is essential for India to also recognize the long-term opportunity amidst this crisis. India needs to take a focused and collaborative approach towards driving initiatives aimed at improving the competitiveness and resilience of the economy.
To harvest and turnaround, early-stage stressed assets of national importance, and INR2 lakh crore National Asset Renewal Fund should be created leveraging the PPP model. The Industry has also made suggestions on the same in the past.
Government investment plans should be expedited, especially in infrastructure. NIIF investments should be managed within three years, instead of the earlier planned five years, to help boost demand and enhance the country’s competitiveness.
A strategic national initiative for economic resilience should be supported by a dedicated financial window with a substantial fund to help incentivize and drive relocation of the global value chain, through infrastructure and technology support in sectors such as Pharma, Select Electronics, A&D, Solar and Textile.
This should also be a wake-up call in my view for strengthening and making our MSME Competitive and Technology Ready. As part of these efforts to enhance competitiveness, a three-year window should be given under a National Mission to drive minimum scale and quality in key manufacturing sectors across MSMEs
Today we are living in an interconnected world, and complete revival of many industries is dependent on the measures taken by other countries. At the same time, the large domestic market requires India to create a comprehensive plan to deal with the aftereffects of the COVID-19 pandemic.
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