Economic
Highlight
New Delhi, 27 April
2020
Severe
Downturn
TIME TO
END LOCKDOWN
By Shivaji Sarkar
Pay or allowances cut
exacerbates a crisis. It hits the purchasing power and recoils back on the
economy. The crisis has been brewing and instead of sending a grim signal of DA
freezing, the centre could have deferred DA payment or as in the past,
credit it to provident fund instead of freezing it.
The DA freeze for Central
and State government employees would amount to Rs 1.20 lakh crore. As
it is not deferred payment it would hit all future payments, calculations and
retirement benefits. It will be a major loss to the economy. This signals
contraction as the corporate also either cuts salaries or reduces number of
employees hitting about 10 crore workers in organised sector, as per
official figures. In reality, the government would get back about Rs 65,000
crore -- Rs 40,000 crore as income tax and at least Rs 25,000 crore as indirect
taxes -- if the DA is paid.
The unorganised has
already thrown out over 1 crore vouched by Home Ministry statement
to Supreme Court bench headed by Chief Justice SA Bobde about migrant workers. Actual
may be far more. It is the largest exodus since 1947 partition.
It is the beginning
of severe downturn and shall last years, says Sanjeev Sanyal, Principal Economic
Adviser to the Government. About 5 per cent of companies are hopeful of revival
in 12 to 24 months, reveals a study by Wills Towers Watson. The optimistic 57
per cent expect moderate to large negative business impact in the next six
months due to corona lockdown. While 46
per cent organisations expect the gloomy phase to be over in 12 months, 19 per cent
expect it to last for two years.
Sanyal is silent on
rising prices everyday as production and supplies are hit. A major concern of
many organisations is labour shortage post lockdown as migrant workers are
walking back in extreme weather conditions for survival and food. Some
were buried under snow, many died a few miles away from their homes after walking
for1000s of km, and some committed suicide, as per various published news
reports.
According to news
reports over 200 of the migrant workers across the country are said to have lost
their lives till April 15. There are no official statistics to confirm these
and neither are they on the list of corona heroes. This reminds us of the
harshest treatment that Girmitiya or indentured labour, who left the country in
mid and late-19th century to serve in British colonies, were meted out in Fiji,
Mauritius to West Indies.
The deaths due to
corona till April 23 are over 700. The official dole is being given to 80 crore
people. However, this exposes the fact that the country’s claim of the number
of people being below poverty line as per Asian Development Bank at 21.9 per cent
or 23.6 per cent as per the World Bank i.e. 28 crore, needs a clear revision. Sanyal
is right. He says, “We are not going to solve poverty by giving Rs 500. We are
just cushioning the hit”.
The challenge is how
to win back confidence of migrant workers for their return. The rural and farm
economy has to be strengthened. Post-corona a new model is needed. Villages
have to sustain India – decentralised cash economy, as discussed by RSS in its
revival of village clusters – gram sankul yojana - in April 2015. The system
has to respect the human capital. It is they who make an economy. Through toil they earn and by spending they
sustain. Their wage suppression and harassment has to be replaced
by giving the real cost to honour dignity of labour and sustainable livelihood.
The RBI, with great
fanfare, announced it has recapitalised banks and other financial institutions
with Rs 1 lakh crore cash. This does not reveal it’s depleting its reserves
once again and at same time exposes the fragility of the banking system. This
money is not to be spent for the poor but for habitual defaulters, at least
since 2008 financial crisis.
The official Economic
Surveys have recorded that 50 largest companies were the biggest defaulters
leading to the collapse of the banking system and its huge NPAs since 2008-09.
In reality, the large organisations do not need any support at this stage. If
the government is expecting that these would create jobs, it is
daydream. Recall in 2008-09 they didn’t do anything and neither are they likely
to do it now. Worse, the interest rate cut is to hit the savers and geriatric.
There is no denying
the sudden lockdown has hurt severely. Instead of such a strong step, India had
the option to look for selected measures as some countries have done. The
corona toll is almost comparable and the lockdown is virtually a major second
blow since 2016 note-ban. The total loss might be more than presumed due to its
lingering effect and the 23 per cent fall - $20 billion - in NRI remittances.
Then the oil price
fall spells doom for the Indian workers in the Gulf. If the lower oil price, below
$20, benefit is passed on to the consumers, it can help reduce costs and
hardships. But falling rupee to Rs 79 to a dollar and high gold prices also have
other fallouts. The Rs 43,574 crore Facebook investments in Jio telecom has
helped wipe out its debt. Another Rs 7600 crore Abu Dhabi royal funding of LuLu
groups of Kerala revives hope that India has still faith in foreign
investors. So does Kotak Mahindra bid to raise $1 billion equity capital.
The pandemic reveals
the 1991 economic model has failed and cautions a new system has to be carved
out. As Bill Gates hails Prime Minister Narendra Modi as world model, chances
are bright. But the revival plan has to target the common man and his free
movement instead of large houses. An essential is to reduce and remove unnecessary
costs like highway tolls, fast tag, many cess, fees, irrational charges, city
entrance taxes and cut in GST.
The nation would
revive as people toil and move freely. Restricted access -- controlled highways
or facilities are the biggest revival hindrance. The poor need to be empowered
and banks need to honour their savings with higher interest payments. It would
help the banking sector bolster its cash reserves.
It is time, the
nation ends the lockdown. Any further extension would be disastrous for all
including education, farmers, transport sector -- train, flights, trucks, buses
to taxis and small vendors. Diseases are not new to this country and selective
isolation of areas would solve that. But policing the entire country has led to
many protests, unhappiness and lack of trust, unsafe roads and even lynchings. Modi
is capable of taking firm and bold decisions. If he takes the plunge, the virus
would be conquered and economy would be back on rails. ---INFA
(Copyright, India News & Feature Alliance)
New Delhi
25 April 2020
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