The South Asia Students For Liberty (SASFL) in association with the Centre for Public Policy Research (CPPR) hosted a live webinar on “Positive Steps towards Revival of Economy in the COVID-19 Era” on May 29, 2020. The panellists were Ms Li Zhao Schoolland, Director of External Relations—Asia Pacific for the Acton Institute and Ms Nissy Solomon, Senior Research Associate at CPPR.

Speaking from a global perspective, Schoolland talked about the importance of staying hopeful and positive towards the post-COVID economic scenario. She said that think tanks, civil societies and opinion leaders should help people find capital and business by identifying and facilitating investors including venture capitalists, NGO capitalists, etc. It is necessary to assume responsibilities to rediscover capital, markets and thereby, be role models in conveying that individual initiative is key to economic revival.

Nissy Solomon, addressed the panel by giving an Indian perspective. The Indian economy, in the pre-COVID context, was already facing an economic crisis with a serious demand compression. When COVID hit India, the economic crisis magnified to a new level creating a dual challenge of both supply and demand disruption. When India saw a surge in COVID cases, Prime Minister Narendra Modi swiftly announced a nation-wide lockdown. However, the lack of planning of the government failed to account for the possible repercussions.

Solomon said that the Finance Minister’s announcement of a 1.7 lakh crore package that followed the nationwide lockdown exposed serious systemic issues. The social security schemes announced inadvertently had a fallout with many seasonal and migrant labourers who have always been ineligible to avail ration benefits due to factors like residency proof. Thus, COVID-9 has become not just a healthcare emergency but one of the biggest humanitarian crises in the country with millions of stranded migrants. The National Food Security Act follows the 2011 Census data to cover 800 million people as beneficiaries, but the recent projection is anywhere between 900 to 920 million people. The difference between the two figures has shaped into a humanitarian crisis today.

As the lockdown continued for two months, many businesses came to a standstill; unemployment shot up with a reported loss of 12 crore jobs as per the CMIE data. Following this, the Finance Minister announced an economic package in five tranches to the tune of 20 lakh crore. Talking about the Economic Package, Solomon highlighted that on the outset, the package appeared to be reasonably sized forming 10 per cent of the GDP, however the relief constituted only 11 per cent of the economic package amounting to about 1.5 per cent of the GDP. The rest of the measures were a combination of credit schemes, repackaging of existing schemes presented in the budget and a few structural reforms, some of which are likely to be far-reaching.

The package gave emphasis to the Micro, Small and Medium Enterprises (MSME) sector and proposed credit guarantee schemes, subordinate funds, etc. targeting both the viable and stressed MSMEs. The problem, however, lies in the realm of banking institutions being risk aversive. Given the weak position of banking institutions and the risk aversion, the credit guarantee schemes are likely to benefit only the viable businesses which form a minuscule fraction of 63 million enterprises in the segment. Although the economic package addressed the medium to long-term measures, it is inadequate to meet the immediate concerns of the country.

Solomon further stated that, in all of these, India needs to take a much calibrated approach. While a priority spending needs to be considered, India should also make sure that there is no excess borrowing that could threaten our financial position. Especially in times of a grave crisis, India will have to recognise the role of multiple stakeholders and create a level playing field for everyone so that the revival is quick.

The Report is prepared by Shruti Khandelwal, Research Intern and Angela Cecily Joseph, Research Associate at CPPR Centre for Comparative Studies.

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