Bringing the economy back on track

Subhrakant Panda | Updated on June 20, 2021

Rebooting the economy   -  Bloomberg

The focus must be on preventing further Covid waves and providing support to economic activity

The hope and optimism on display at the start of the year was rudely tossed aside by the ferocity of Covid’s second wave. Even as we turn the corner with total active cases at the national level falling sharply from a peak of more than 37 lakhs to less than 10 lakhs as on date, several States are still on edge.

State governments have imposed serious restrictions to control the situation which, in turn, impacted the economy with several leading indicators showing moderation. Of course, while lives and livelihoods have to be balanced, there is no doubt that saving lives must come first.

Households have been hit hard by Covid as loss of livelihood, income and increased expenditure on healthcare has depleted or even destroyed savings. Consumer confidence is also dented and pent up demand witnessed after the first wave may not be easily visible this time around. However, none of this is insurmountable as appropriate policy measures over the medium to long term coupled with the overall resilience of the Indian economy will lead to a positive outcome by way of equitable economic growth.

As the health crisis wanes, attention needs to be focussed on preventing further waves while also providing necessary support for economic activity to stage a comeback.

Preventing a third wave

Rapidly scaling up the ongoing vaccination drive along with Covid appropriate behaviour is the only way to prevent future waves. Availability of vaccines is expected to improve significantly with production being ramped up and a target of 8-10 million vaccinations per day is eminently achievable leading to a large part of the population being covered before the end of the year.

At the same time, it is important to prepare for a third wave by way of: (a) augmenting health infrastructure, (b) installing PSA oxygen units in all hospitals above 200 beds capacity, (c) setting up isolation care facilities for asymptomatic/mild cases which can be scaled up as needed and (d) leveraging technology through teleconsultation, etc to set up intermediate care facilities.

Economic activity should be linked to the positivity rate in a district. FICCI has proposed four levels ranging from minimal risk (less than 2.5 per cent positivity rate) to high risk (more than 10 per cent positivity rate) with several mitigation measures such as ‘isolation bubbles’ and threshold vaccination levels obviating the need for any curtailment.

Curtailing economic activity, though necessary, has led to a double whammy with both demand and supply chains being affected. MSMEs and high touchpoint sectors like hospitality have been hit the hardest, and GDP forecast for FY22 has been trimmed by 100bps. In this context, RBI’s accommodative stance for as long as necessary along with targeted liquidity measures is very welcome. However, more steps are needed.

Expansion of MGNREGA for at least six months and a similar measure for the urban poor, provision of rations for BPL families, and direct cash transfers through Jan Dhan accounts will provide essential relief for the poor. At the same time, triggering demand through ‘consumption vouchers’ should be on the shortlist of ideas; an expenditure of ₹50,000 crore by the government can trigger consumer spend of up to ₹1.5 lakh crores.

MSMEs, already battered by Covid, need serious handholding. The ECLGS 3.0 scheme which is available till June end should be extended till the end of the year and the outlay enhanced. Units which are otherwise viable but for the Covid impact should be allowed to restructure loans; in this context, the RBI’s decision to raise the limit under the Resolution Framework 2.0 to ₹50 crore is noteworthy.

At the same time, hassle free exit routes for those units which cannot be revived should be considered. Finally, while a special liquidity window has been announced for MSMEs and the hospitality sector, it may be required to consider a moratorium of six months to give breathing space.

In conclusion, the last 18 months have been unprecedented to say the least and the future remains clouded even now; however, there is much to be said for the resilience of humankind — from developing vaccines in record time to adapting to the ‘new normal’, we have come a long way in the fight against a hitherto unknown virus. Responsible individual behaviour and a rational, but aggressive, response by policy makers is needed. It is the essential link to the maxim – we can, and we will, overcome.

The writer is Vice-President of FICCI

Published on June 20, 2021

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