The Covid-19 pandemic has hit India at a time when the Indian economy itself has been on a downward trajectory since 2018-19. According to an English daily, India’s growth fell from around 8% in Q4 FY to a new low of 4.5% in Q2 FY2020, on a quarterly basis. Media sources state that India suffered losses of more than Rs. 32000 crore during the first phase of lockdown.
In this hour of crisis, the government has taken certain initiatives to combat this situation of economic crisis. In case of taxes, for 2018-19, the last date for returns and delayed payments has been extended to June 30 and the interest rate has been reduced from 12% to 9%. For delayed deposit of TDS also, the interest rate has been reduced to 9% from 18%. The GST returns for March, April, May and composition returns have also been extended to June 30. It has also been declared that no penalty will be charged from companies worth less than Rs. 5 crore. In order to prevent the triggering of insolvency proceedings for SMEs, the threshold of default has been raised to Rs. 1 crore from Rs. 1 lakh.
The government has also announced a relief package of Rs. 1.7 lakh crore which is aimed at providing a safety net for the worst sufferers, along with insurance cover for frontline medical personnel. The government further said that the entire provident fund of those who earn less than Rs. 15000 per month in companies with less than 100 workers will be paid by it.
The central government has also made the provisions for availability of extra rations, for three months, to those covered under the National Food Security Act. However, there are scanty measures undertaken at the grassroot level for the poor to access their share of the rations. Hence, it is highly recommended that the government should work with immediate effect for improving the public distribution system.
The government has assured an advance payment of Rs. 2000 for individual farmers for April but it is highly inadequate, especially, this is a crucial time for farmers when the new crops are ready. Industry insiders are of the opinion that soon, urban areas may witness racketeering in agri-produce, resulting in skyrocketing prices, while farmers will be unable to sell their produce in rural areas, resulting in tumbling prices there.
When asked about the awaiting crisis following the lockdown phase, Shaunak Roy, Assistant Professor, Department of Commerce and Management, St. Xavier’s College (Autonomous), Kolkata, told BE, “The crisis will be faced by practically all sectors be it aviation, real estate, retail or manufacturing but I want to stress upon the most immediate and pressing issue the country will face after the lockdown: an unparalleled unemployment crisis.”
According to a recent CMIE report, India’s urban unemployment rate soared to 30.9% and overall rate rose to 23.4% due to the impact of Covid-19. The governments have pleaded with companies to avoid layoffs but it may be a feasible thing to consider for large-scale enterprises with robust cash flows. Roy stated, “When these firms are pushed not to lay off employees, they would logically stop hiring in the near future to save costs, thus triggering a severe unemployment crisis.”
He further added, “Think about those small- or medium-scale firms which lack the capacity to recruit because of the lockdown. Or consider those firms that require supplementary endowments from financial institutions to disburse pending salaries now that the working capital cycle has expanded. The banking industry, which itself is in shambles, will not be able to accommodate to such corporate requirements.”
In an interview with PTI, economist Jean Dreze stated that as soon as the lockdown is relaxed, migrant workers who are stuck in different parts will try to return home and probably would hesitate to migrate again for some time. This may lead to the shortage of manpower in the sectors highly dependent on migrated workers.
Expectations from the government
According to industry insiders, India still possesses a massive opportunity and can still reposition itself in the world economy, without significant damage to its own. Due to low demands, negative crude oil prices have been recorded all over the world. Hence, this can be India’s golden opportunity to gain a leeway on the current fiscal deficit, without major inflationary strains.
Praveen Khandelwal, General Secretary, Confederation of All India Traders (CAIT) told BE, “There is an urgent need to provide stimulus package to traders and small industries since they are the backbone of the economy and after agriculture, the largest sector for providing employment.” He also stated that the government should provide subsidy in wages of the employees of traders instead of the employers. He also argued in favour of deferring taxes and EMIs till September 30. He is of the opinion that it will be advantageous for India if the government undertakes certain economic steps to make India an investment destination.
Roy informed, “The need of the hour is for governments to promote sustainable employment, by generating fresh jobs in the formal sector that offer better pay. It is also time to upgrade the micro enterprises to small, small to medium, and medium to large-scale ventures; this can be actualised only when more productive and lucrative jobs are engendered.”
Though several states such as Kerala, Odisha, Rajasthan, West Bengal etc. have announced a flurry of interventions, they are themselves strapped for cash. In this case, the central government must recompensate the state governments for their outstanding amounts in view of the MNREGA scheme. Possibly, the best bet at present for the centre is to consider a concurrent injection of colossal funds into the economy through significant external borrowings, albeit being far from a neutral fiscal policy. While governments shall scrutinise imminent inflationary pressures, they must also consider the long-term picture in order to salvage robust growth and stabilise the Indian economy that is just about in free fall.