FROM THE EDITOR-IN-CHIEF
After 48 days of lockdown, Prime Minister Narendra Modi announced a much-awaited stimulus package on May 12. As part of it, he offered an economic stimulus of Rs 20 lakh crore ($266 billion), or 10 per cent of India’s GDP, among the highest in the world. It is in keeping with the revival packages announced by major economies—the $2.2 trillion dollar lifeline by the US, which is 13 per cent of its economy, or Japan’s $1 trillion, which is 21 per cent of its economy. However, India’s package included the Rs 1.7 lakh crore stimulus announced by finance minister Nirmala Sitharaman on March 26 and the Rs 7.9 lakh crore stimuli administered by the RBI between February and April.
Prime Minister Modi laid out his vision for an ‘Atmanirbhar Bharat’ or Self Reliant India. It rests on five pillars—bringing a quantum, not incremental, jump in the economy, creating a modern infrastructure, setting up a technology-based system of governance, leveraging our young demographic and harnessing India’s huge domestic demand. The prime minister is masterful in projecting a vision for many of his schemes, but their execution has been a mixed bag. Schemes such as the Swachh Bharat Abhiyan, which greatly reduced open defecation, opening of bank accounts for the unbanked, distribution of gas cylinders, direct benefit transfer for farmers and affordable housing have been reasonably successful while others such as Make in India, Start-up India, banking reform, getting government out of business have been non-starters. The question that now arises is how the new vision of Self-Reliant India will be translated into action. Does it imply a return to the Nehruvian idea of import substitution? Prime Minister Modi in his stimulus speech also asked Indians to be vocal about local, urging them not only to buy local products but also to promote them. Does this presage higher trade barriers to protect inefficient Indian industry and the end of the various FTAs we have signed? How do we become competitive in our tradeable goods? What is our growth strategy now that the export-driven growth as practised earlier by South Asian countries and later by China is passe? Do we seriously believe we can be part of the global supply chain when the world is turning inwards and we still rank 63rd in the ease of doing business in the world? Such attempts have failed in the past, as we saw with SEZs. I believe the government should encourage FDI for catering to our domestic consumption; exports, if they happen, will mean a bonus. This way, we could have access to the latest technologies and the best practices in the world. These are some of the things the prime minister will have to address as he walks his talk if India is to be pulled out of one of the worst financial crises it has faced.
Meanwhile, finance minister Nirmala Sitharaman has, after the prime minister’s vision, rolled out a series of measures for MSMEs, which form 29 per cent of our GDP and 48 per cent of our non-agriculture workforce. She has basically provided them liquidity in the form of easy-to-get loans without collateral, subordinate loans and equity investments. MSMEs number 63.3 million, but this will really benefit only 4.5 million. There are no payroll protection programmes like in the US, UK and Germany. This is commensurate with the prime minister’s philosophy of giving no handouts to business. One hopes these loans will help businesses revive themselves, but many who will be unwilling to increase their liabilities, or cannot avail of a loan, will go bankrupt, resulting in a loss of jobs, income and, eventually, demand. If demand does not pick up, it will mean mass bankruptcies, which is a distinct possibility. To get a loan, of course, would entail navigating the petrified bureaucratic banking system. Banking is all about risk and our banks at the decision-making level have become risk-averse for fear of subsequent prosecution. The agriculture reform of allowing farmers to sell goods freely is most welcome as is the commitment to develop rural infrastructure and expand MNREGA.
The sight of millions of migrants spilling out of Indian cities and walking thousands of kilometres to their homes in Uttar Pradesh, Bihar and Madhya Pradesh with their meagre possessions on their backs and braving heat, hunger, exhaustion and even death will haunt us for years to come. For them, the government has given free food for only two months and the promise of a portable ration card. It has been a colossal failure of this government to have not anticipated the consequences of the lockdown for the migrant poor in cities who can’t even practise social distancing in their cramped dwellings. Their misery was further compounded by the vacillating policies on allowing them to return to their original homes.
Our cover story, ‘Modi’s New Swadeshi Deal’, evaluates the impact of this stimulus package on the economy and examines its implications both in the long term and the short term.
The prime minister faces the daunting task of reviving an economy paralysed by COVID-19. The Indian economy, besides its enormous size, is highly complex, as it operates at many levels. Its ways of working straddle many centuries, from the most primitive to the super-modern. Managing it from a centralised bureaucracy, that too a slothful, leaky one, will never get us the desired result. The government has to trust the invisible hand of the market to decide who produces what, where to sell it and who buys it. This is the time when the government should reduce bureaucratic controls on the economy and concentrate on building world-class infrastructure, including human development, as the prime minister has promised. He can make the government more efficient by reducing the number of ministries and keeping them focused on what governments do best. In India, everyone is an entrepreneur, even the corrupt among the bureaucrats and government officials. The prime minister has to boost the entrepreneurial spirit of India to help it escape the current mess and reduce the power of those who shouldn’t be in business. This is the quantum change I am looking for.