Indian economy: Covid-19 has dealt a devastating blow to the economy, which was already slowing down. To recover and have a decent growth rate, a programme of reforms, bolder than what the government has introduced is needed. The government and the Reserve Bank of India (RBI) should focus on fully utililising national assets, which are currently underutilised to make Bharat Atmanirbhar. Fresh investments in greenfields projects have been taking time; usually, anything between three to ten years pass away due to manifold approvals and changing regulations. Administrative reforms are needed. It is not easy to do business. Improving the ease of doing business has a long way to go. Now is the time for bolder action.
Most measures announced by the Prime Minister and the Finance Minister have a medium to long term horizon. The need of the hour is to allow banks to structure/ restructure debts of troubled companies for a period of one to three years based on future cash flows; value of assets and collaterals. However, asset quality must retain ‘standard’ categorization so that no provisioning is necessary. Let an institution like the Board of Industrial and Financial Reconstruction (BIFR) be established. The RBI and the government require structured thinking to enable the economy to restart. Temporary measures will not solve deeper problems. All businesses will take six months to one year to regain their foothold as Covid-19 has impacted them greatly and these impact will linger for months, if not quarters.
Litigation: The government should start the process of releasing thousands of crores stuck in litigation by itself, various PSUs and various tax authorities. Officials are wary of taking decisions in genuine cases.
Animal husbandry and dairy: The government has proposed finances for this sector to boost the rural economy. It will increase milk production and supply, which has doubled from 79.66 MT in 2000 to 188 MT in 2018. Increasing production will meet the challenges of poor nutrients especially to children/youth. For a population of 130 crore, Bharat needs 400 MT milk. Import of milk powder needs to be stopped. There needs be a dairy plant in each district.
Infrastructure: The government should get going on infrastructure projects in sectors like highway, railway etc., especially for those where over 50% of the work has been completed. Ongoing projects should not be pushed into bankruptcy or abandoned, wasting crores and crores of rupees and disrupting easy movement of goods and passengers. Focus should be on social infrastructure – healthcare, rural social projects for health, housing, animal husbandry, forestry, pisciculture, apiary, etc.
Migrant workers consist of highly skilled, semi-skilled, and unskilled workers, many of whom are jobless today sharing limited food and space for living with larger family. Many don’t have two square meals per day, not to talk of nutritious food.
Healthcare sector: The Covid-19 crisis presents an opportunity to rectify the deficiency in public expenditure in health sector, which has been stuck at an abysmal 1% of GDP. Bharat needs massive investment in the healthcare sector. Covid-19 has opened our eyes to how deficient this sector is. Government should ensure that existing hospitals and healthcare facilities and those on the verge of starting and in greenfieldoperations don’t become bankrupt. This sector should be given all funds to create additional facilities. ‘Make in India’ in this sector needs to be facilitated with the ease of doing and running enterprises.
The government should do the following:
•Provide funds to needy healthcare units & structure/restructure their existing loans, wherever it is required. Revalue the assets including the land price.
•Provide working capital and loans should be classified as priority sector. Additional funds should be provided by Banks/FIIs and NBFCs.
•NBFC loans to healthcare sector should be funded by banks/financial institutions.
•Any investment or contribution made by corporate to hospital/healthcare sector be treated as Corporate Social Responsibility (CSR) spending under Section 135 of the Companies Act.
•India Inc. should be encouraged to contribute to this sector under CSR.
•Not levy GST on medical equipment and building materials for the construction of new hospitals.
•Should give land at cost price and or wasteland/ surplus land of railway at notional price
NBFCs and NBHFCs: RBI Governor Shaktikanta Das said that funds availed by banks under TLTRO 2.0 should be invested in investment grade bonds, commercial
papers and non-convertible debenture of NBFCs with at least 50% of the total amount going to small and mid-sized NBFCs and MFIs. It is not sufficient to meet the critical situation resulting from the Covid-19 crisis. It is urgently needed to allow one-time structuring/ restructuring based on future cash flows. Further, he has announced that NBFCs should give three months extension (i.e. till August) on repayment of instalments by borrowers without reciprocal advice to banks. Government needs to help by: a) Releasing government and related dues; b) Advising refund on outstanding tax dues; c) Relaxing loan norms to prevent loan impairment; d) Providing immediate liquidity to NBFCs – to subscribe quasi-equity/10 year redeemable or convertible preference shares by LIC and development financial institution; e) Directing banks to allow NBFCs to use funds so received towards fresh lending; f) Release fund after securitisation of assets, so that funds can be utilised for fresh business, g) Allowing one to avail 100% input tax credit instead of the present 50% so that cost effective instrument of lease asset to customers; and h) Amending partial credit guarantee scheme to include assets originating till September 30, 2020 instead of March 31, 2019, increasing the individual assets size cap to `50 crore from the existing ` 5 crore.
The increase in demand not matching supply will lead to inflation. There’s a need to give fresh fund and structuring loans to all sectors like manufacturing, healthcare, hospitality, FMCG, MSMEs, etc. to create supply and create employment, which will create demand. It is the historical and economic cycle of growth. Public investment needs to be invested in stressed assets through the PPP model.
Europe is giving money to companies to pay the wages to their workers. Many wealth creators have been paying full wages, some half despite a fund crunch. The government should reimburse them and boost employment and demand. The US government is providing some percentage of wages and transferring money directly to individuals. It is also giving loans to enterprises.
Fiscal deficit: The central fiscal deficit in 2020-21 may be over 5% as stated by Chief Economic Advisor, Krishnamurthy Subramanian. The central borrowing would be `12 trillion as ` 4.2 trillion additional amounts is being borrowed. This additional borrowing is to account for the shortfall in tax collection and the missed disinvestment target. Thus, there is hardly any scope for stimulus from this extra borrowing.
Wealth creator: Mukesh Ambani’s enterprise Reliance Industries will be free of debts three months earlier than target time. He has sold partly his stakes to foreign investors. Why he wants to be free of debts? Is it uncertainty, a bleak economic growth or to preserve and protect family wealth? Are all wealth creators thinking in this way?
Environment Day: Global industries are interested in investing in India as they are acquiring stressed assets at bottom out prices. Valuation of all assets, even good ones, is down. Government wants to restrict and or check neighbouring countries’ investors. It is up to the government how to protect its own wealth creators and bring them out of the cage of fear and uncertainty.
On June 5, World Environment Day was celebrated. Bharatwasis vowed to protect ‘Mother Earth’. Nature’s disasters warn us to protect Mother Earth by adopting measures like afforestation, controlling population and pollution, and preventing over-exploitation of resources.
To conclude: The FY2020-21 and 2021-22 would be the years for survival and stability and for doing the groundwork for resuming rapid growth. What has been done is not enough.