Economic Highlight
New Delhi, 31 May 2021
Informal
Sector & Economy
PVT
DEMAND CRITICAL: RBI
By
Shivaji Sarkar
The repeated natural
disasters and Covid-19 lockdowns are taking a heavy toll on India’s economy and
hit the informal sectors the most. The Central relief to three States, Gujarat,
West Bengal and Odisha is Rs 2000 crore in addition to States also allocating
part funds.
The raging second
covid wave is impacting States’ finances. The Centre has released Rs 8837.6
crore in advance as the first installment of its share to State Disaster Response
Fund (SDRF) for 2020-21. It is a huge sum for a country subsisting budget
expenses on debt.
The World Bank gave $1
billion (Rs 72,000 crore) support to to India’s health sector. The
second tranche of $250 million is to be released this year. There is also a
$400 million International Development Association soft loan.
The Reserve Bank of India
says at end-March 2020, India’s external debt was placed at US$ 558.5 billion,
recording an increase of US$ 15.4 billion over its level at end-March 2019.
India’s overall debt is $ 2628.49 dollars or Rs 3.80 lakh crore as on March
2021. Debt servicing cost has also increased. Interestingly enough no money was
raised through “masala bonds” as rupee-denominated bonds (RDB) are
called in a choppy global market and tight domestic monetary conditions. External
commercial borrowings during March 2021 amount to $ 9.23 billion.
While its
debt burden is growing, the domestic situation is a matter of concern. The
UNICEF South Asia Regional Director George Laryea-Adjei has warned that the
scale and speed of the Covid-19 surge is “outstripping” India and its
neighbours’ abilities to provide life-saving treatment to the people and “there
is risk of fragile health systems collapsing”.
Even the
RBI has expressed concern on India’s growth prospects in its annual report this
week as it depends on how fast the country can arrest the second pandemic wave.
It sees uncertainties and the only hope is from the bumper rabi crop or
agriculture sector and some activities in housing, road construction, freight
transportation and the IT. Interpreted, it means most other sectors remain
stagnant or in many cases like the SMEs and the unorganised or informal sector
in trouble.
The World
Bank in its latest study,
The Long Shadow of Informality:
Challenges and Policies, says
that India has the highest share, over 70 per cent, and one-third of GDP, of
informal employment along with Bangladesh and Pakistan. These workers are
excluded from labour laws and social protections schemes. They lose jobs and
face extreme poverty and food insecurity as the pandemic has intensified. This
diminishes the ability to mobilise the fiscal resources for conducting
macro-economic policies and build human capital for long-term development.
Government expenditures also were lower by as
much as 10 percentage points of GDP. Similarly, central banks’ ability to
support economies is constrained by the underdeveloped financial systems
associated with widespread informality. Though global body reports praise
India’s free food programmes during the first phase, not continued in the
second one, finds even the central bank constrained. It virtually clubs the
country with the emerging markets and developing economies (EMDE).
The other concern is that most informal workers
are predominantly women and young people (in reality it shies away from saying
children). They have little recourse to social safety and suffer severe income
losses. “Limited access to social safety
nets has meant that many participants in the informal sector have neither been
able to afford to stay at home nor adhere to social-distancing requirements” World
Bank observes.
“High levels of informality lead to weaker
development outcomes. Countries with larger informal sectors have lower
per-capita incomes, greater poverty, greater income inequality, less developed
financial markets, and weaker investment and are farther away from achieving
the goals of sustainable development”, it says.
The report is critical of heavy regulatory and
tax burdens being imposed leading to the rise in numbers of informal
employment. It castigates Europe, Central Asia, Latin America, the Caribbean,
West Asia and North Africa tax excesses.
India needs to learn from the observation as
it is resorting to increase taxes of all kinds during these difficult days and
even medicines have at least 5 to 12 per cent taxes. The State governments are
increasing annual taxes on houses by over 5 per cent and many other facilities
including tolls and fuel charges. The various stipulations of GST and its
penalties need to be eased if the country has to grow.
The stark revelation is that since 2018 the
numbers in the informal sector are growing, though since 1990 to 2018 it
registered a fall. This is a pointer to a global slowdown and Indian finances
have seen falling during the last three years adding poverty in absolute
numbers. Even the jobless in the IT sector and manufacturing has swelled. Many
gainfully employed till a year ago are now without an income support. The CMIE
recently reported that over 80 per cent people have suffered income losses.
These are critical areas the government
naturally finds it an uphill task to turn the table. It has severely hit demand
and leading to crisis in almost all spheres of life, worsened by high price
rises. The RBI recognises the problem in its annual report. It says: “The recovery of the economy from Covid-19 will
critically depend on the robust revival of private demand that may be led by
the consumption in the short-run but will require acceleration of investment to
sustain the recovery.” That remains a problem for both the Centre and States.
The World Bank suggests that steps have to be
taken to improve governance and business climates and harps on streamlining the
taxation system for lowering the cost of production and help increase
operational margins.
The Central government has repeatedly been
suggested to review its high taxation and extortionist approaches. Unless the
lowest in the rung, the unorganised daily wagers, are empowered, expecting
better conditions shall remain a dream. And yes, it has also to give up
cosmetic avoidable debt-funded expenditures like the Central Vista of Delhi.
The panacea is simple if adhered to. --- INFA
(Copyright, India News & Feature Alliance)
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