The Indian economy which had barely started to recover from the pandemic has been hit hard by the second wave.
With 90% of India under lockdown, this has affected mobility, incomes and demand.
This has led to a cut in GDP forecasts by 1.5%-2% by most agencies. India, which was expected to grow by 11%, may now record sub-10% levels. The Nomura India Business Resumption Index fell to 60 for the week ended May 23, levels seen in June last year after a full recovery in February.
The MSME sector, travel and tourism, civil aviation, real estate, auto, FMCG (rural areas) have been hit hard by the lockdowns. Unemployment has reached the highest level since June last year according to CMIE.
The Centre is preparing a stimulus package for the sectors severely affected by the second wave of coronavirus pandemic, as per news agency Bloomberg.
Ten steps (short-term and long-term) which can be taken by the government to propel growth are listed below:
1. Calibrated opening
With recoveries now exceeding daily cases and peak behind us, states should look at a slow opening up of the economy from June 1. Further lockdowns could hurt the economy. Sale of non-essential items online should be resumed.
In districts where the positivity rate is less than 5% could be opened up first and then others in a gradual manner. However, complacency should not creep in and states should prepare well for a third wave as well.
2. Re-Introduce moratorium and guarantee scheme
The government needs to announce another round of moratorium albeit for a shorter duration of 3 months. A new restructuring scheme for individuals, MSMEs needs to be initiated by the RBI.
The government had introduced an emergency credit line guarantee scheme of Rs 3 lakh crore for borrowers to meet their working capital requirements. This needs to be brought back again soon.
3. Widen and deepen NREGA
In the first wave, the NREGA allocation was increased by Rs 40,000 crore to help migrants and rural households tide over the loss of livelihood. In the second wave, the scale of migration is lower, however, rural unemployment is high. Rural demand which was the saviour has been hit hard.
While migration is low, employees of the unorganized sector in urban areas have been badly hit. An urban form of NREGA which has been in the pipeline for some time can also be tried on a pilot basis. This will help to revive demand. The quantum of increase in NREGA could be lower than last time.
4. Direct Cash Transfer & Free Ration
In the first wave, Rs 500 per month for three months was transferred to the women of 20 crore poor households. This needs to be repeated as it will lift rural sentiment.
The government has announced 5 Kg free ration under the PM Garib Kalyan Anna Yojana for 2 months which will benefit around 80 crore people. This also can be further expanded by a month or two.
5. Use forex reserves and / or print money
India has huge forex reserves of approximately $600 billion which provide a big cushion in the event of any crisis on the economic front. The government should a portion of this to states for managing their COVID related expenses as per some experts.
6. Aggressive privatisation / sale
The government taking advantage of the high stock markets should opt for an offer for a stake sale in some PSU companies. This could offset some of the delays being experienced on the disinvestment front.
7. Infra push (multiplier effect)
India is a developing country and short of infrastructure of all kinds: roads, bridges, ports, airports, hospitals, schools etc. The government needs to focus on creating long term assets the benefits of which will accrue for many years to come.
At a time when the country is facing an unemployment crisis, this strategy will provide a fillip to job creation. People who get jobs will earn incomes and spend the same on goods and services, thus boosting demand and leading to an increase in sales / profits of corporates.
Increased demand will lead to higher operating rates across industries and ultimately companies will need to invest in fresh capacities to match demand and supply. Higher government spending will unlock the consumption and investment levers leading India to grow at its full potential. This will have what is called a effect on the economy.
8. Invest aggressively in healthcare
India should take this opportunity to significantly upgrade our health infrastructure. The Economic Survey for 2021 also makes a case for increasing public spending on health from 1% to 2.5-3% of GDP.
The number of beds in India per 10,000 population is one-third of the global average. A roadmap needs to be built to scale it up to world standards in the next 3-5 years.
9. Encourage FDI in manufacturing
The government has introduced a Production Linked Incentive (PLI) scheme for the manufacturing of large-scale electronics in April 2020. In November 2020, the PLI scheme was extended to 10 other sectors — chief among them were food processing, battery storage, automobile components and specialty steel.
More steps need to be taken including 1) expansion to more sectors (ii) incentives based on the number of jobs created and (iii) removing some of the bottlenecks in the above scheme.
10. Build EV ecosystem
The government should move towards creating an electric vehicle ecosystem in India. The dependence on imported crude results in bouts of economic instability (FX rates, inflation, interest rates, corporate profitability etc.). This will save us billions of dollars each year.
To sum up, the above steps will build a resilient economy and help register double digit growth in coming years.