Can India successfully tackle the looming economic crisis? Do we need the replay of Narsimha Rao – Manmohan Singh magic for this? Come to think of it, what the two did was straightforward application of economic fundamentals devoid of ideological-political adulteration. They had the advantage of cerebral support from the likes of Montek Singh Ahluwalia and others. Coming back to the present… We are getting more excuses than solutions for the economic disaster facing the nation. Although the downturn had started with denotification, the government has the readymade alibi in the current global trends.
According to a UN report (Department of Economic and Social Affairs or DESA), the global economy may shrink by “at least” 1% in 2020. Many experts feel this is a bit optimistic, given the emerging global situation. For example, the United States GDP fell by an estimated 4.8 per cent in the first quarter of 2020, the largest quarterly decline since the fourth quarter of 2008 during the global financial crisis. The American Congressional Research Centre indicated that foreign investors have pulled an estimated $26 billion out of developing Asian economies and more than $16 billion out of India, increasing concerns of a major economic recession in Asia.
To prevent recession demand should be boosted which will encourage greater production and a healthier economic activity. For boosting demand, the consumer’s power to purchase needs to be enhanced. While our middle classes have become wary of spending, the labour class is facing existential crisis. In India, almost 90% of our labour force is working in the informal sector. It does not have even a flimsy social security net. Normally, the unemployment rate in India hovers between 7 to 8%. Now it has reportedly shot up over 20% for the reasons we all know. The situation is grim indeed. According to a survey by the Centre for Monitoring Indian Economy Pvt, the jobless rate was 23.4% for the week ended April 5. Let us hope this is a temporary phenomenon. With unemployment hitting new highs every passing hour, how do we increase the per capita purchasing power?
People must have spare cash to spend not just on bare essentials like food, but also other goods and services that help improve the quality of one’s life. Most probably, there would be a strong tendency to save rather than spend, given the uncertain conditions in the foreseeable future. According to official statistics, roughly 20 crore women (47% of adult females) have a Jan Dhan Yojna Account, which may get 500 rupees per month as cash transfers. There is no way to ascertain how many of these are actually deserving of the benefits. There are reports that 12.5 crore poor women do not have PMJDY accounts.
Even if we assume that these accounts were opened only by poor women, how will this 500-rupee bounty enhance demand? This may not be sufficient for paying the house rent. Whether this is sufficient to increase money circulation in the economy that will lead to activation of latent demand is debatable.
The 25% reduction in tax deducted or collected at source for non-salary payments like interest on bank deposits, dividends, rents etc is expected to result in Rs 50,000 crore more flowing into the system. This is like offering a tumblerful of water to a thirsty multitude.
The RBI has announced an eight-lakh crore liquidity infusion which includes reduction in repo rate for making bank credit cheaper. Repo rate is the rate at which the RBI lends to banks. Will this encourage kickstarting of stalled industrial and economic activity?
Although touted as the economy’s backbone, the MSMEs have been getting a raw deal for quite a while now. The central and state governments, along with big corporate houses, owe more than five lakh crores to the MSMEs. This was disclosed by Mr. Nitin Gadkari in an interview to a TV news channel. If these receivables are cleared immediately there would be no need for loans and booster packages. The extension of three more months (June, July, August) provident fund support for businesses and workers in companies employing fewer than 100 people is an inadequate sop … actually a cruel joke.
The big corporate houses have their own problems. The demand for their products may not pick up any time soon, given the prevailing market sentiment. This makes the offer of concessionary loans of little worth.
Infrastructure projects are expected to boost demand for industrial products like cement etc, which may result in enhanced employment of skilled and unskilled labour. But when central and state governments are clients, firms do not get payments easily or on time. Red tape and corruption remain the biggest problems.
Finally, there is the familiar litany of too many permissions and clearances required for setting up business. The talk of inspector-permit raj has not yet died down.
As for labour, the main objectives of the Factories Act are to ensure safety measures on factory premises. They also promote health and welfare of workers. The Shops and Commercial Establishments Act, on the other hand, aims to regulate hours of work, payment, overtime, leave and holidays etc. The Act also deals with employment of women and children. These are the minimum benefits essential for incentivising the labour force.
In its eagerness to attract foreign capital the government is amending the labour laws that may adversely affect the interests of workers. This kneejerk reaction to the current situation is dangerous. Already there is a tendency among employers to hire labour through private contractors. The terms and conditions are highly exploitative with no obligation or liability on the part of employers. If current labour laws are suspended as has been done by UP and some other states, exploitation of labour will become all pervasive, leading to distress in the workforce. This may deter foreign investors. The spate of sectarian violence in recent years has been another disincentive for investors.
For the sake of Indian economy’s long-term interests, the labour force should be assured of decent minimum wages, safety at the workplace, adequate healthcare, housing and social security. They should be helped to improve their skills for meeting the industry’s demands. On the other hand, investors should be assured of a system free of red-tape, corruption and harassment by government officials and politicians.
Finally, no amount of fiscal and monetary boosts will be of avail if we do not get rid of the three biggest obstacles in the path of India economy’s prosperity. These are red tape, communal violence and corruption.
Whether the Indian economy will actually have a positive growth rate this year remains to be seen, but obviously the focus should be on the basics for rebooting the economic growth:
1. Just and wise governance
2. Long term reforms
3. Well considered economic decisions, not knee-jerk reactions
To avert the threat of recession, peace, prosperity and progress should be the bywords for business and political elites.
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