Step 0: Zero because it is not a wishful step, it’s a necessity
Must Ensure that we contain this Pandemic: No matter how it affects the economy in short or medium term, use all the resource to tackle the Coronavirus spread. We cannot put livelihood over lives. In the absence of a cure, it has to be fought as much with the morale as with the money. We should have a good memory when we look back in times to come, and be proud of how we overcame this pandemic despite not being one of the developed nations and with such large population. So, all measures taken to overcome this health crisis, should be persisted with.
So now it brings us to, how do we overcome economic challenge thrown over by Covid-19?
Steps that Government can take:
1. Put the fiscal Math aside: India has done well to bring down the fiscal deficit in last few years. However, this year would be different. Economies worldwide will shrink, India too. Loss of 2 months of GDP would mean anywhere between 15-20 % of GDP would be gone for the year. We need to shore it up, it will need a booster. US, Germany, UK, Italy have already made provisions for it anywhere between 7-10 %. India, needs similar approach if not more for this financial year.
2. Put a freeze on all expenditure which has no direct impact on economy in short to medium term: A bullet train, a new parliament complex, a new capital for Telangana, customary foreign travel of President, Vice president and parliamentarians, a new airport in Greater Noida, all can wait for 6-12 months.
3. Cut down the Defense budget to half: India spends whopping 7 percent of the GDP, That’s a little less than one month equivalent of GDP on Defense. Only critical acquisitions should be allowed, India should rather focus on boost healthcare infrastructure and global political alliance to mitigate the threat of war if it arises.
4. Cut the tax on Automobile: This sector contributes 7 % to GDP and has nearly 22% share in manufacturing. The cascading impact on jobs and livelihood is even larger if you count the MSME and service network of this sector. Moreover, people would be inclined to buy personal vehicle when we recover. So, why not make it an engine to revive economy.
5. Use oil for our economy: Oil price slump is a blessing in disguise. Not only it will bring the current account deficit down but can be a windfall of potentially 3.5 lac crore to Governments kitty. However, government should to pass at least a third of this to people and fully to aviation sector. It will help the transport sector bring down the cost and hence bring the logistics cost to the industry down and make us more competitive.
6. Make for India: One of the impact of Covid-19 would be that lot of countries will cut back on imports to save their own industries and job loss. De-globalization would happen. It’s time for India to do a planned substitution of Imports specially for electronics, automobile parts, pharmaceuticals raw material, etc. It’s important that we identify 2-3 potential players capable of leading these sectors and support them financially and otherwise.
7. Give jobs to migrant workers near to their home: This is a perfect time to states with migrant workers to retain them. They should in fact go on a spree to incentivize job centric industries to set up manufacturing in their state. However, center has a important role to play in suggesting what type of industry should be set up in what parts of country to achieve economies of scale and global competitiveness.
8. Save critical sectors: While it may not be feasible to save every sector from transitional shocks like hotels, tourism, it’s important that we save some key sectors like aviation, export oriented industries like leather and textile, etc. Its needs intervention of both Government and financial institutions.
9. Use the goodwill earned to our advantage: India has earned some amount of goodwill by exporting key drugs to US, Brazil, Israel and other friendly nations. It has also shown tremendous maturity in handling the crisis so far and showing the way to world how to deal with it. At point, make this to use. Ask MNC’s in China to consider shifting their manufacturing base to India. Also make a deal with US to protect Indians in IT sector from potential job loss in US.
10. India needs a Khadi Movement again: Lots of workforce would get idle for a short to medium term. Can we think as to what we can produce for our nation and for the world in smallest of set up, may be in every house. Can government out up a minimum price and buying guarantee mechanism in place. Something like a mask, parts of PPE kits can be made. We may think of more items. Make it mandatory to wear mask in public for 6 Months. Consumption in India can alone generate enough demand to take care of significant job loss in informal sector.
Steps that RBI and Financial Institutions can take:
11. Bring the cost of finance further down: Inflation would be under control for a long time to come. RBI should bring the cost of finance down and insist with institutions to pass the rate cuts to industry and individuals.
12. Zero net interest period: If possible, freeze the time clock partially for few months. Instead of only providing the moratorium, banks should share the burden of interest a bit on themselves. It could be a time where banks say that they will not profiteer from lending, instead be a zero net interest income institutions for may be a Quarter.
13. Print money for poor: Giving a meagre 500 Rs. a month is insufficient. US is printing money, may be few other nations as well. Nothing wrong in using this tool right now, when survival is a concern.
14. Save jobs for consumptions: Viable businesses should be aided to survive. MSME’s and mid-size companies would require money to pay salaries. It’s time to provide sufficient working capital to save jobs and not let the consumption go down to keep the production up and running once we open up.
15. Funding to startups: Like MSME’s, financial institutions need to lend to start ups generously. Equity capital will dry, but there are very good start ups running. They will need funding till they become profitable. They must me supported.
