Economic Revival; Challenges faced due to Covid-19 Pandemic

economic recovery
Dr.R.D.Mishra, Director, Greater Noida Productivity Council    Frm Director  & Head, National Productivity Council, GOI

Economic revival should be the long drawn strategy which requires more spending by Government in the essential sectors of economy, providing boost to MSME and Agriculture sector which is the mother of all sectors of economy, easing the Tax rates both GST and Personal Income tax, and accelerate micro financing to daily wage earner and street vendors.

A task force for revival of economy should constitute representatives from, various Industrial, Trade and commercial bodies, including experts on the subjects for early recovery.

Economic Revival is a great challenge

Economic Revival is a great challenge not only before Indian Government, but more than 180 countries of the World, still suffering due to Covid-19 Pandemic which started during October-November 2019. It is reported that Indian Gross domestic Product (GDP) suffered a loss of -23.4% during first quarter for the year 2020-21.

In fact even the strongest Economy of the World United States also suffered a loss of -32.9% annualized rate deepest decline during last century. This is due to the fact that India imposed stringent Lock down since March 25, 2020, to avoid spread of deadly Covid -19 virus, which badly affected all sectors of Economy, Manufacturing and service sectors, leading to loss of GDP.

MSME sector suffered a loss of -67 % which itself is a record. According to Goldman Sachs a leading global investment banking, securities and investment management firm forecasted that India’s GDP growth is likely to shrink by 5% in FY 2020-21.

Therefore  during mid May 2020 Government announced big stimulus package  of 20 Lakh Crore which is equivalent to 10 % of GDP, to bell out lockdown-battered economy, and focused on tax breaks for small businesses as well as incentives for domestic manufacturing.

According to our Finance Minister Smt Sitaraman who stressed that economic package of Aatmanirbhar Bharat rests on five pillars: Economy, Infrastructure, Technology-driven systems, Demography, and Demand.

measures for the revival of MSME sector

The focus will be on factors of production: Land, Labour, liquidity and Laws. The intention is to make local brands global. She further stressed following measures for the revival of MSME sector which are as such

  1. Collateral free loan of Rs 3 lakh crores for MSMEs. This will benefit 45 lakh units so that they can resume work and save jobs.
  2. For stressed MSMEs, Subordinate debt provision of Rs 20,000 cr has been announced for 2 lakh MSMEs. It will benefit those which are NPAs or stressed MSMEs.
  3. Rs 50,000 Crore equity infusion through Mother fund-Daughter fund for MSMEs that are viable but need handholding. A fund of funds with corpus of Rs 10,000 crore will be set up to help these units expand capacity and help them list on Markets if they choose.
  4. Definition of MSMEs has been revised to allow MSMEs to aim for expansion and not lose benefits. Also, there’ll be no distinction between manufacturing & services sector MSMEs.
  5. Global tenders will be disallowed up to Rs 200 crore for government contracts.
  6. Ensure e-market linkages are provided across the board in the absence of non-participation in trade fairs due to Covid-19. Government  of India and PSUs will clear all the receivables in next 45 days.
  7. A liquidity relief of ₹2,500 Crore EPF support is being given to all EPF establishments; EPF contribution will be paid by Govt. of India for another 3 months till August and will benefit more than 72 lakh employees.
  8. Statutory EPF contribution for all organizations and their employees covered by EPFO has been reduced to 10% from 12% earlier. This doesn’t apply to government organizations. This will infuse Rs 6,750 cr liquidity into these organizations.

These measures could not provide relief to most of the sector of economy as desired, may be Government could not afford due to bad performance of GST collection during first quarter of 2020 having a shortfall of 41 % than its previous counterpart of 2019 which is clear in the following graph

Economic revival

            (Source: Ministry of Finance, report on GST collection dt 1 July 2020.)

suggested measures

This shows Government measures are not sufficient enough and following measures are suggested

  1. Government must stall/defer big project outlay, which is presently not required such as The Central Vista, the new parliament Building having a budget of 20,000/- Cores, NHAI projects, except for boarder area projects etc. Not only that, Government should curtail 10 % in all Government expenditures till the realization of economy.
  2. Government should provide dolls, to those, who lost their jobs due to the Pandemic, for the periods till they are again redeployed, as done in most of the countries.  In NCR region only more that 60-70 suicide cases were reported, due to loss of jobs during Covid-19.
Special relief package
  1. Special relief package should be given to SSI units having strong backward and forward linkages with large scale industries. Industries located in the remote areas should have special consideration as it is in dying condition.
  2. Government must reconsider Income tax structure to provide relief to common honest tax payers. Recent announcement of transparent Taxation platform to benefit honest taxpayer’s assessment, faceless appeal and tax payers’ charter is not enough. Government must raise Income Tax Limit to 10 lakh without any trick. Honest tax payers should be rewarded by providing like Free Health Insurance, Public recognition etc. This will certainly widen the Income tax base, and help recover economy. 
  3. Government should accelerate realizing non performing asset (NPA) of banks so as to invest in most needy sectors of economy. Moreover Government should provide credit guarantee which will be necessary for banks to reach out those starved of fund as banks only provide risk based lending.
  4. Agriculture sector needs more attention, by providing tax free, subsidized fertilizers, good quality seeds, electricity, and water to realize the dream of doubling the farmers Income by 2022. Thanks to agriculture sector, provided uninterrupted food and vegetable supplies even during worst hit period of pandemic.
  5. Daily wage earners, street vendors should be provided micro financing by banks at minimum rate of interest.
responsibilities of State Government is equally important
  1. In order to revive economy the responsibilities of State Government is equally important. State governments should be given more than their share of revenue, particularly share of their GST. Their fiscal deficit limit if required is allowed to 4 % of GSDP from present 3 %.
  2. In case of finance deficit, Government may issue bonds for this purpose, and may take long term loan from Reserve Bank of India or any other International Institutes. Even large scale business houses having surplus of fund may be considered.
  3. Real estate sector is the worst hit due to demonetization and Covid-19, need more economic package to revive, which one time had a share of 6-7 % of GDP. Although during November 2019 Government announced Rs 25,000/-Crore packages to help halted projects, which is not sufficient to complete the delaying projects but during pandemic no bailout package is provided for this ailing sector. This will not be out of place to mention that a no of industries are directly associated with Real estate like, steel, cements, Woods, Plastics ets and provides a good employment opportunities.
  4. A strong supply chain network must be weaved so as to reduce less on Import and we should promote our exports.  We should develop a strong Integrated Manufacturing facility of all type for International requirement so as to fulfill the requirements of World supplies. This will strengthen our economy in the long run
  5. In order to revive economy Government should constitute a “Core group for Economic Revival” comprising of representatives from various Industrial and Commercial associations like, CII, ASSOCHAM. FICCI, and Economic experts etc to suggest measures for early recovery of Economy.

Finally, these are some suggestive measures, which may not be sufficient in it unless supplemented with our population problem which is more than 138 Crores, as on date out of which 37 % constitute poor families.

We need to act on this as there seems to be always widening gap between supply and demand due to population explosion.

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