The entire world is in a state of dilemma which no one would have even dreamt of. The present Covid-19 pandemic is considered to be World War III and a great depression situation for the entire global economy. This China-borne pandemic has brought many negative impacts with itself. The world right now has become stagnant and this has led to a downfall in the economy. The Indian economy has witnessed the same and India’s growth for the next fiscal year has been downgraded with the lowest figures the economy has seen in three decades since India’s economic liberalization in the 1990s.
For the last two months, the entire country was under a strict lockdown and there were no economic activities being carried on. During the lockdown, the unemployment rate has risen to 26% and daily, a number of staffs, employees are being laid off due to decrease in the supply chain of any business (about 14 crore people have lost employment).
Many of the sectors have been affected adversely. Agriculture sector plays a crucial role in India’s GDP. Unfortunately, the ongoing lockdown coincides with the Rabi harvesting season. It has created a problem in matching the supply with the demand of the entire country. Everything coming to a standstill, has eventually reduced the income for the farmer brothers.
Small businesses have also been affected and new initiatives (Startups) by the young entrepreneurs have been impacted as funding has fallen. India’s stock market posted its worst loss in history. Some of the sectors like aviation, tourism, automobile will have a long-term impact even if the current situation is contained since people are going to demand less due to apprehension created by the pandemic.
A developing economy like India should rather consider this as a golden opportunity which they can attract. Due to mistrust, most of the countries won’t rely much on China and its products. Thus, supply chains can be incentivised to shift from China. India can attract more Foreign Direct Investment, and can build a good trade relation which China had with other countries. It is likely to shape the ‘Make in India’ programme with industrial policy once again gaining ascendance. An effort should be made by “Self-reliant” India to increase the production of goods and services that we imported from China and to attract production units of foreign companies in China, to India. This will help us in reviving our economy and achieving the goal of USD 5 trillion economy.
In order to reach that milestone, here are some of the steps which the government can make to ease their way.
Infusion of money into States:
States need the maximum support in fighting against the current situation as the health sector comes under the State’s portfolio and they have to be supported financially. This can be done in two ways: Firstly, the state government can get a higher rate of State’s share of taxes by the Central or there can be transfers in the form of grants and loans. The other option is for RBI to further liberalise its loan rules for states and make it state-friendly. Though ₹1.9 trillion has been allocated to the States as per the current stimulus package, the Central might have to inject more in certain States depending upon the number of cases.
|It shows the percentage of State’s share from the Central. But, this has to be increased in order to financially support all the states and union territories of India.|
Less Restrictions to be imposed on the Agriculture Sector:
Agriculture sector should be given priority and steps should be taken to revive the working in this sector. Restrictions on farmers, mandi, harvesting and farm related machinery should be waived off. This needs urgent intervention because large-scale crop procurement and harvesting is one way of providing income support to farmers. Moreover, broken supply chains need patching up so that the farm sector has access to all the necessary inputs for Kharif sowing which might not face the problem as faced in the Rabi season. The government should ensure that farmers are working at the same pace and proper safety is provided to them.
Higher Taxation for Liquor shops:
Some of the goods have low elasticity of demand, that is, there won’t be much shift in the demand of the commodity if the price rises. One of those is liquor. The government had opened the liquor shops during Lockdown 3.0 and wanted to earn revenue through this source. They saw a huge demand from the public and they can extract a lot of income by increasing tax for liquor products, in the future. They can increase the cost of getting the liquor business licensed since most businessman find an opportunity in this sector.
Support to Social Entity:
Business Venture Capital Funds can be created in order to ensure that social business can still emerge. The government should encourage private sector, foundations, financial institutions, investment funds, to fund these social businesses with CSR funding so that they can contribute to this society where creating social awareness is very important. Social businesses can engage themselves in creating a robust health system in collaboration with the government system. Better facility of tax exemptions can be given to the companies providing CSR funding to the social businesses.
An aid by the Reserve Bank of India:
RBI has to devise several measures in which it can provide money to the Government and other banks. RBI can use the Bank Rate (repo rate can be reduced) to increase the money in the banks which they can use in lending it to the people and entrepreneurs who want for their business. The banks further have to lend this money at low interest rates. This lending will help to get economic activity back on track to some extent. RBI will have to use moral suasion to convince banks to keep subscribing to government bonds. Banks need to maintain a certain proportion of their deposits with the RBI. RBI can reduce this Cash Reserve Ratio which in-turn will increase the ability of the banks to lend. Though the current economical package provides Rs 5.47 lakh crore from the RBI, it is important that this is being maintained and if needed the injection from the Central Bank of India should be more.
Another way in which RBI can help in reviving is printing of more money.
The government issues bonds and the RBI buy these bonds. And, RBI creates the money by simply printing it (or, rather, creating it digitally). This money is handed over to the government or credited in their account.
The government then spends this money in various ways, acts as the spender of the last resort, gets the economy going again, and everything comes back to normalcy.
On a similar line, there can be implementation of Helicopter Money which acted as a catalyst in 2008 financial crisis to boost the Economy. This theory is basically direct transfer of money to everyone by the central bank if it wants to raise inflation and output in an economy which is running substantially below potential. This could be another steps taken by the Reserve Bank of India (also proposed by Telangana CM K Chandrashekhar Rao) to revive the economy since transferring money directly to consumers, would send then to spend it immediately, boosting confidence in the economy.
So, we all should together fight against COVID 19. Instead, of being apprehensive, we need to start accepting it and turn the opportunity coming to our Economy’s way into mere reality.