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Is it a Package? A Stimulus? Or a Reform?

It is for the government to jump-start the economy, through massive spending. Only government spending will have scale and size. The reform directive should focus on industries of the future, like space and aviation, electronics manufacture and telecom. It could start with funding research in vaccine development, 5G technologies, manufacture of cell and electric batteries, through start-ups and eminent institutions of research.

EVER SINCE COVID-19 was announced as a pandemic by the World Health Organisation, we have seen a declining sentiment of businessmen, entrepreneurs and consumers. This was further exarcebated by the lockdowns announced in all the major global economies. These drove global growth downhill.

India, which had a ‘pre-existing condition,’ in the form of financial sector stress well before the lockdown. MSME stress and closures due to lack of demand were other serious problems. Contract labour and daily wage earners, vendors and other workers who were rendered jobless had to be given food packets and water for survival. Above all, migrant workers deciding to move back to the almost hopeless situation they had left behind in the first place, created a humanitarian problem that could not be hidden from the world view. These are our country’s unique problems.

The reliefs…

Around the same time, other countries that had much less challenges were taking more effective actions, both on the monetary and fiscal fronts, some of which were very large and executed quick. Like the Paycheck Payment Program, Small Business Debt Relief Program or Express Bridge Loan Program of the US where the government directly put billions of dollars in the hands of small businesses and consumers. These measures came to be termed globally as relief packages. As early as April 2020 these raised expectations of individuals and businesses in India on a similar package to be announced by the government. For most people, ‘Package’ meant relief money going directly into the hands of several affected people and the severely impacted small businesses.

Rumours floated everyday about the impending package of announcements, expected by all sectors of the economy, including aviation, real estate, textile industry…

The first announcement came from RBI, which set the trend for a potentially declining interest rate regime. This gave hope and many analysts and commentators predicted that the government will simultaneously take some quick fiscal measures.

Chief Economist of IMF, Gita Gopinath indicated that India shouldn’t worry too much about the fiscal deficit escalating over the short term. She was reported to have said ‘don’t sweat it.’ Our finance ministry understood that they have fiscal room. A MIT Economist, Olivier Blanchard, is credited to have established that as long as the GDP growth rate is higher than the interest rate, fiscal deficit is not a worry. And there was enough case history to show that even after the Global Financial Crisis of 2008, despite all the quantitative easing measures, inflation was well under control. The expectations grew larger as days passed by. Finally came the five part saga of the government making a mega announcement daily for five consecutive days.

Is it a ‘Package?’

If the expectation of a package is doling out money, DBT to the needy and migrant workers, loan waivers for farmers and small businesses, it wasn’t a package. If the package was expected to improve consumer demand, albeit slowly, it wasn’t. Well, it may be, if the additional allocation for MNREGA kicks in quickly.

Is it a ‘Stimulus?’

Yes and no. If the credit guarantees stimulate lenders to lend, it is a yes. Are the borrowers willing to borrow? If they wait for demand to revive, then the answer is not yet. I was talking to a home appliances manufacturer; he was not in a hurry to resume production, because he found demand very light; besides, he was already carrying four months’ inventory. While he can avail the liquidity announced, but was not sure if and when he should borrow.

It rained reliefs!

THERE WAS NO dearth of criticism on the action/inaction/inadequacy of the government’s measures to tackle Covid-19. Spokespersons of the Congress were quick and sharp in their criticism   and TV news and print media revelled in reporting and analysing these.

The response by the Modi government was equally swift and strong. The announcement of the Prime Minister on the 20 lakh crore rupee package of reliefs, stimulus and reforms was elaborated over five days: Finance minister Nirmala Sitharaman and Minister of State Anurag Singh Thakur, aided by secretaries and senior officials of the finance ministry explained in lucid terms the measures designed to benefit vast sections of the society. This exercise continued with course corrections and fresh measures.

The exertions seem to be even more taxing than preparing the annual budget!  Of course, the projections of the budget seem go for a toss!

May 13:  Relief measures and credit support related to businesses, especially MSMEs to support Indian economy’s fight against Covid-19.

May 14:   Measures to ameliorate the lot of migrant labour, street vendors, migrant urban poor, small traders, self-employed people, small farmers and housing.

May 15:   Measures to strengthen Agriculture, Infrastructure, Logistics, Capacity Building, Governance and Administrative Reforms for Agriculture, Fisheries and Food Processing sectors.

May 16:  Structural reforms in the eight sectors of Coal, Minerals, Defence Production, Civil Aviation, Power Sector, Social Infrastructure, Space and Atomic energy.

May 17:  Measures towards Government Reforms and Enablers.

Is it a set of Reforms?

If it is clearly not the first two, then we are safe in categorising these measures as reforms – measures that would benefit the economy in the medium to long term, but not necessarily, immediately. But the full end to lockdown and getting over the Covid-19 pandemic is not imminent either.

How will the economy bounce back?

It is again for the government to jump-start the economy, through massive spending. Because only government spending will bring scale and size and the government is well aware of sectors that can create employment on a large scale.

In addition, just as the reform directive focuses on industries of the future, like space and aviation, electronics manufacture and telecom, it is possible for government to incentivise investments in these areas. It could start with funding research in vaccine development, 5G technologies, manufacture of cell and electric batteries, through start-ups and funding eminent institutions of research. We can become self-reliant sooner than later, particularly in the high growth areas of the future.

The private sector can play a large role investing in expansions and new projects creating employment, provided the government encourages their efforts. Among businessmen, both big and small, there is a palpable fear of bureaucracy, regulators and tax authorities. Can trust be built through open, continuous and transparent communication among various stakeholders?

Can we create a climate, through consistent effective communication, in which every firm, small and big and every entrepreneur, as also the bureaucrats and politicians care about the country, its progress and welfare of its citizens?

It is working together that will deliver results.

Not threats of arrests or diktats to pay wages.

Not micro-management, like dictating price bands for airfares, dictating when and how airlines should schedule normal services…

Not suggest complex conditions  for solving problems eg. allowing states to borrow with higher limits. – Lakshmi Narayanan  

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