An injection for reform and growth
The stimulus package, with systemic reforms, marks a new paradigm for economic resurgence
If one were to describe the magnitude of the crisis facing the world today, one could draw a parallel from Margaret Atwood’s The Year of the Flood. “The pandemic travelled through the air as if on wings, it burned through cities like fire.” The scene seems to have been planted into reality. The coronavirus has spelt disaster for global economies, supply chains, markets, trade and livelihoods.
But for India, owing to bold decisions such as the nationwide lockdown, the impact in terms of lives lost has been relatively less. Credit goes to the able and decisive leadership of Prime Minister (PM) Narendra Modi. Without doubt, his unique, unequivocal and bold decision-making has safeguarded the interests of 1.3 billion people, and has saved thousands of lives. India’s coronavirus disease (Covid-19) case fatality rate is 3.23%, compared to the global death rate of 6.92%; the recovery rate is 34.06%.
In every adversity lies an opportunity. Where India stands is an inflection point, much like the 1991 economic crisis, which was a harbinger of a paradigm shift via liberalisation, privatisation and globalisation. The post-covid-19 era will usher in unprecedented opportunities. Fortunately, India has been able to tap into these opportunities.
The recently unveiled Atmanirbhar Bharat Abhiyan (self-reliant India) and the emphasis on ”Vocal for Local to Global” hit the right note with the post-covid-19 era requiring a new orientation; a redrawing of India’s growth story that is reform-driven, and hinges on the ability to sell its indigenous capabilities to the world. First brought about by Mahatma Gandhi, it has again been made the pivot by the PM, on which reforms will pervade the five pillars — economy, infrastructure, technology-driven system, vibrant demography and demand.
The government realises that this macroeconomic vision will turn into reality by strengthening the grassroots. The ₹20 lakh crore economic stimulus, alongside big-bang systemic reforms announced by the government, is an apt opening to this vision. The envisaged impact is two-fold; first, interim measures such as liquidity infusion and direct cash transfers for the poor will work as shock absorbers for those in acute stress. The ₹1.7 lakh crore package under the PM Garib Kalyan Anna Yojana and One Nation One Ration Card will allow 800 million marginalised Indians to maintain their nutritional intake levels — through guaranteed ration. Similarly, the decision to allocate an additional sum of ₹40,000 crore for Mahatma Gandhi National Rural Employment Guarantee Scheme, provide a free three-month supply of gas cylinders to 83 million BPL families under the PM Ujjwala Yojna, ₹500 ex-gratia transfer to 200 million women Jan Dhan accounts, ₹1000 each to senior citizens and widows, and a deposit of ₹2,000 each to the accounts of over 80 million farmers through direct benefit transfers are commendable resuscitative steps.
The second entails long-term reforms in growth-critical sectors to make them globally competitive and attractive. Together, these should not just help put India back on track as a competitive player in global markets, but also be seen as filling the void created by the pandemic and create new opportunities for growth in sectors like agriculture, micro, small and medium enterprises (MSMES), power, coal and mining, defence and aviation.
India ranks second globally in farm outputs. It still stands to be among the largest producers of milk, fruits, and pulses. Despite the heavyweight numbers, little is processed here and India ranks fairly low in the global food processing value chains. This is an untapped growth opportunity, which is why we must build on our comparative advantage, and ramp up our competitiveness by enabling farmers to steepen the value curve of their produce. Post Covid-19, we should take the lead in the race of becoming the food factory of the world. The measures announced for the agricultural and allied sectors are particularly transformative. The new proposed law that allows inter-state trading of agricultural yield will allow farmers to leverage attractive prices and markets beyond their home state, stepping towards the One Nation One Market objective. Similarly, the proposed amendment to the Essential Commodities Act will allow private players to purchase agricultural commodities on a large scale. Moreover, measures worth $13 billion to enhance farmgate infrastructure will go a long way in boosting farmer incomes and thus, achieving the goal of self-sustainable villages. However, these measures must be coupled with a robust digital trading platform. The government may come up with a national grid of local platforms currently operating in isolation, along with bringing credible agri-tech startups onboard. This shall also help in standardisation of quality parameters of the agricultural produce and in providing digital tools to assess quality.
Like agriculture, MSMES are collectively one of the biggest employers — with about 120 million workers on their rolls, including migrant labourers. Around 75 million MSMES contribute to about a third of the GDP and 45% of the manufacturing output of the country. But, at the same time, they are considered by banks to be the riskiest borrowers. According to a Bizfund report, only 16% of MSMES in
India get formal credit, leaving more than 80% of these companies under-financed or financed through informal sources. Therefore, a large part of the stimulus is really about activating channels of credit. The ₹300,000 crore collateral-free loan facility for MSMES or the ₹30,000 crore liquidity facility for NBFCS, mortgage lenders and microfinance institutions announced in the first tranche of the package are examples.
Another sector that will assume importance will be health care. Almost every country has been compelled to relook how much it spends on public health. For perspective, it is important to note that the total per capita government spending on health care has nearly doubled from ₹1,008 per person in FY15 to ₹1,944 in FY20. The government has decided to increase public health spending, besides other prudent measures such as establishing government diagnostic labs till the block level. While currently, this will strengthen the country’s testing capacity, for the future, it will help foster a more resilient grassrootslevel health infrastructure.
The recent announcements are also a testament to our government’s balanced approach in addressing concerns across sectors. For example, the newly launched PM e-vidya programme for multi-mode access to digital online education provides a uniform learning platform for the whole nation, which shall enable schools and universities to stream courses online without further loss of teaching hours. Additionally, limiting imports of weapons and increasing the limit of foreign direct investment in defence from 49% to 74% will give a much-needed boost to the Ordnance Factory Board, while reducing India’s huge defence import bill.
To establish clout overseas, we must first become a formidable unrelenting force at home. The magnitude of the problem has been huge. It’s of a size that no government in the world could have been prepared to face. However, as the curve flattens, the Centre’s revival plan is optimal and logically sound. It provides a safety net for the most vulnerable, and a “vitamin injection” to re-unleash the animal spirits of growth-critical sectors. We seem to be well on course in this pursuit.