Open Forum
New
Delhi, 15 April, 2020
Lockdown & After
BRUTAL RECESSIONARY PHASE
By Dhurjati Mukherjee
The combination of continued lockdown and slowdown
since the third quarter of the previous fiscal is going to hit the country
harder like nothing it has faced in the past three decades. Other than the
Centre, States such as Maharashtra, Uttar Pradesh, Punjab, Kerala, West Bengal,
Telangana and Odisha, who favoured extension of lockdown, will need to prepare
a blue print and refine it as time goes by to tide over the crisis.
The IMF Managing Director Kristalina
Georgieva recently observed at a joint news conference with WHO chief that as
the global economy has come to a virtual standstill because of the pandemic,
the world is now into a recession that will be ‘way worse’ than the global
financial crisis. Obviously, India would be greatly affected as flow of funds
from the western world would be slower in the coming months. Some economists are
of the opinion that such recessionary phase may continue beyond June but that
would be disastrous for the economy.
Meanwhile, Fitch Ratings slashed India’s
growth forecast for the current fiscal to a 30-year low of 2 per cent from 5.1
per cent projected earlier, while Moody’s also cut India’s growth forecast for
calendar 2020 to 2.5 per cent, obviously due to economic recession gripping the
global economy following the pandemic. Goldman Sachs estimated just 1.6 per
cent growth, mainly due to the pandemic outbreak. For the next financial year,
the Asian Development Bank instilled hope by projecting GDP growth at 4 per
cent as it thought “the country’s macro-economic fundamentals remain sound” and
hoped the economy to recover strongly.
As is generally agreed, the capitalist model
followed in India has done very little to promote welfare, including social
infrastructure development, which would have benefitted the impoverished
sections. Prof. Amartya Sen, one of the many critics, questioned the major
assumptions of this model that sufficient production of goods will ensure their
availability to all. This has not happened in the country as the top-down
approach failed to meet expectations of beneficiaries. This is also reinforced
by the widening inequality between the rich and poor as also amongst the urban
and rural sections of the population.
In such a critical situation, there are
expectations of how quickly people will get back to work, keeping in mind the
need to follow social distancing. While the industrial sector will not take
long, small businesses may have problems adhering to government guidelines. As
regards migrant workers and those who may take time to resume their normal
activities, they need to be specially taken care of, perhaps through direct
benefit transfer at least till May-end.
An estimate by a well-known Left economist is:
“If we add all cash transfers announced by Finance Minister Sitharaman, the
amount comes to a mere Rs 34,000 crore, which is less than 10 per cent of what
civil society organizations were asking for”. This is peanuts but it goes
without saying that unlike the US and Europe, which can spend around 8 to 10
per cent of GDP without fear of a ratings downgrade, this is not the case with India,
already suffering from a huge fiscal deficit.
Meanwhile, the ILO has warned that around 400
million (40 crore) informal sector workers are at risk of falling deeper into
poverty during the coronavirus crisis, prompting calls by the government to
cushion the staggering blow. In its latest report, ‘ILO Monitor Second Edition:
Covid-19 & the World of Work’ observed the crisis as the “worst global
crisis since World War-II”.
Nagging fear, which may turn into a reality
is that small traders and farmers would have a very rough time in the coming
months as labourers may not be available, plus manufacturing would have to do
with two or three workers and not getting requisite experienced hands. Moreover, tiny units, which are more or less
supported by households, too would require special attention.
Resources would be a big constraint as
disinvestments cannot be carried out in the first quarter of the current fiscal
with stock markets having receded to very low levels. Thus, there would be a
need to curtail unnecessary expenditure and focus on immediate needs. Mention
may be made in this connection of banning foreign travels of government
officials and even ministers, reduced allocation of funds to projects that
could be delayed, reducing by say 5 per cent of defence expenditure and finally
suspension of the Rs 20,000 crore Central vista construction and beautification
project in Capital, Delhi. However, the decision to suspend MPLADS scheme for
two years, till 2022 should have been given better thought as it would impact development
activities in rural constituencies. Perhaps, the Centre would have done well to
consider reducing it instead by 50 per cent only for this fiscal.
Importantly, the RBI will need and has to
take a more active role by helping banks and financial institutions in the next
three months. Some moratorium on loans needs to be considered and capital
requirements, as far as possible may have to be met. Also there has to be a
concerted strategy of boosting up the capital market by the LIC, SBI etc. as
foreign investments may not be forthcoming.
While COVID-19 spells doom, the government
will need to change thinking and strategy. The thrust has to be rural India. As
it is, 3000 children die every day from hunger and starvation and one in four
children are malnourished in the country! All this points to the need for
developing health infrastructure, specially in backward districts, sub-divisions
and rural India per se.
Insofar as the private sector is concerned, so
far there is no information how much of financial support it will get from the
government--in all likelihood meagre. As examples of private nursing homes
stare us in the face, wherein these were set up by getting land at subsidised
rates from the government, but low income groups can’t afford these for
treatment.
The focus on development as reiterated by
this writer has obviously to be on the Gandhian model whereby economic
inequality should not be allowed to widen further by linking consumption and
sharing resources with the masses given that one is only a trustee of what one
has and not strictly its legal owner. Unfortunately, this philosophy is spoken
off by politicians and corporate leaders but not followed in letter and spirit.
The scenarios may vary but it is good to believe that by May-end, the pandemic
should show signs of receding, at least in India. There is hope.---INFA
(Copyright, India
News & Feature Alliance)
New Delhi
13 April 2020
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