By Vivek Pattanayak*
The Covid 19 lockdown, followed by most of the countries including India as a measure to contain the spread of the pandemic, had severe economic consequences throughout the world.
First effect of this lockdown is unemployment. Second is substantial loss of revenue of business enterprises including absolutely no income for many units, making them unviable and sick, some temporarily and many terminally. Third feature is pervading fear psychosis perhaps affecting ability to take risk of doing business. Migrant workers in India will hesitate to go back to their old jobs. Fourth is disruption of social life, man being a social animal. Fifth is debilitating uncertainty of future.
India is connected to the global economy dependent upon international supply chain. What happens to the international business, commerce and trade would affect India.
Although all segments of population of the country have been affected, the severest of impact has been felt by the poor people. Condition of migrant workers is pathetic and indescribable. In the urban centers from vegetable and fruit vendors to petty shopkeepers, and from rickshaw pullers to barbers, tailors and washer men, all such people categorized as unorganized sector have lost their occupation, business and hence income. No wonder they have become poorer and some may have become destitute.
In addition to this, MSME sector has taken heavy toll as the lockdown took away manufacturing or trading or service activities. Their sustained income loss has made them sick. Large corporates have also suffered consequential loss which will be reflected in their next quarterly balance sheets and profit and loss accounts. Imports and exports have fallen which have contributed to the loss of the companies whether large, medium, or small dependent wholly or partially upon that source. Banks and financial institutions have also suffered consequent on account of non-payment of dues by the debtors and lack of right level of business of lending. Stock market has been affected, although in India the percentage of people participating in stock trade is extremely low. Nevertheless, those belonging to lower middle class who had invested their savings have lost the value of their wealth. Exchange rate of Rupee vis-a-vis US dollar has plummeted reaching the lowest level.
The central government has come out with five economic packages of relief covering many sectors encompassing different categories of affected enterprises and people.
The first and foremost task of the governments must be to look after the migrant workers who have not reached their destination yet. It is simply unacceptable that so many people will be still trudging along the road with their children and belongings on their back even after more than fifty-five days of lockdown in sweltering summer heat. They must be picked up by buses and other means of transport with their luggage and carried safely to their destinations.
All poor, whether urban or rural, migrant or otherwise who have lost income source should be given cash assistance in addition to rice or wheat whose stocks bulge in the government warehouses.
In the age of Aadhar cards and mobile telephones, lack of statistical data cannot be a valid reason not to find a way to extend to them this non-negotiable succor for their sustenance at this crucial time of life and death.
MSME sector needs assistance. The foremost priority should be given to bring their levels of operation to the pre-Covid 19 level. Most of the units in this sector would need working capital assistance which can be provided by the commercial banks and in some cases by cooperative banks.
MSMEs seeking term loans may also approach non-banking financial companies (NBFCs) in addition to commercial banks. What is the state of health of NBFCs?It should be reviewed with priority. Before Covid 19 many of them had become sick, moribund and non-functional since the collapse of Infrastructure Leasing Financial Services Ltd (ILFS). As regards tiny enterprises who are categorized as unorganized sector, to what extent Micro Finance Institutions (MFIs) can bail them out is a big question mark particularly when their financial health has not been good for a long time. For some years MFIs had lost their viability and credibility as a result they have not contributed much to the vibrancy of the economy. Resuscitation of these institutions should be given due importance.
In this context it perhaps makes perfect sense to revive the State Financial Corporations and State Industrial Investment Corporations which played a significant role in financing MSMEs in the past as Non-Banking Financial Companies (NBFCs).
Agriculture is crucial at this stage when kharif season is about to commence. Migrant workers have been returning to villages. First, they should be utilized in MNREGA till the agricultural season fully commences when many of them will be utilized.
Those who have come leaving behind their industrial jobs and other service activities should be provided with some gainful employment. Agriculture based allied activities like horticulture, floriculture, dairy farming, goat rearing, piggery, poultry farming, pisciculture and beekeeping can be source of employment for them. Many types of agro-based industries like chilling plant, fruit processing units etc. can be promoted by identifying suitable entrepreneurs.
They, however, need financial assistance both credit and initial capital. The rural cooperative credit institutions can be the channel of extending financial assistance. NABARD can play an effective role by lending to cooperative banks. Even commercial banks and rural banks can play their parts. Micro financing institutions can assist them in promotion of tiny units. Much would depend upon the efficiency of cooperative and commercial banks and health of MFIs and NBFCs working at grassroots levels.
Many can be employed if expenditure is made in rural infrastructure like construction of village roads, bridges, culverts, and causeways, much needed warehouses along with cold storages. These can be done only by the government involving the Panchayati Raj institutions.
When the national economy is sagging the best way is to make massive investment in construction activities like highways, railways, airports, heliports, seaports and irrigation projects. They will consume cement, steel and aluminum making heavy industries to reignite consuming power, utilizing iron ore, bauxite, coal, and limestone thus restarting mining sector.
During the lockdown the travel, tourism and hospitality industries have been very badly battered. The entire transport sector including road, railways and air transport need assistance. Private bus operators who have taken bank loans must get relief. Airlines also need helping hand. The private airlines would need rescheduling of loans. The question of privatization of Air India would need rethinking at this stage. Domestic tourism should be encouraged. The country has infrastructure like hotels, resorts and other facilities. Unless air transport and railways start operating, hospitality sector cannot recover. Hotels need rescheduling of loans. Unless domestic tourism is encouraged, and transport sector revives hotels cannot easily recover from the shock. Travel agencies have no business now. They provide employment to large number of young people. Planning must be done as to how soon and how best to restart international air travel which will start international tourism and business-related travels.
Health sector has received disproportionately less financial outlay as a percentage of GDP. Most important challenge is public health which is often given lower priority by the governments. This is the best time to rectify.
The central government should resort to quantitative easing. RBI should start buying sovereign bonds. The government should resort to other forms of public borrowing. Raising external borrowing when the interest rate is near zero will be appropriate. In India, development of corporate bond market should be step in the right direction. The government need not be over constrained by rating agencies and Financial Responsibility and Budgetary Management Act.
*The author is a former bureaucrat and held important positions in aviation and power regulatory body. He can be reached through e-mail at [email protected]
DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of Sambad English.