Lockdown & After: Brutal recessionary phase

Lockdown & After: Brutal recessionary phase

The combination of continued lockdown and slowdown since the third quarter of the previous fiscal is going to hit the country harder like nothing it has faced in the past three decades. Other than the Centre, States such as Maharashtra, Uttar Pradesh, Punjab, Kerala, West Bengal, Telangana and Odisha, who favoured extension of lockdown, will need to prepare a blue print and refine it as time goes by to tide over the crisis.

The IMF Managing Director Kristalina Georgieva recently observed at a joint news conference with WHO chief that as the global economy has come to a virtual standstill because of the pandemic, the world is now into a recession that will be ‘way worse’ than the global financial crisis. Obviously, India would be greatly affected as flow of funds from the western world would be slower in the coming months. Some economists are of the opinion that such recessionary phase may continue beyond June but that would be disastrous for the economy.

Meanwhile, Fitch Ratings slashed India’s growth forecast for the current fiscal to a 30-year low of 2 per cent from 5.1 per cent projected earlier, while Moody’s also cut India’s growth forecast for calendar 2020 to 2.5 per cent, obviously due to economic recession gripping the global economy following the pandemic. Goldman Sachs estimated just 1.6 per cent growth, mainly due to the pandemic outbreak. For the next financial year, the Asian Development Bank instilled hope by projecting GDP growth at 4 per cent as it thought “the country’s macro-economic fundamentals remain sound” and hoped the economy to recover strongly.

As is generally agreed, the capitalist model followed in India has done very little to promote welfare, including social infrastructure development, which would have benefitted the impoverished sections. Prof. Amartya Sen, one of the many critics, questioned the major assumptions of this model that sufficient production of goods will ensure their availability to all. This has not happened in the country as the top-down approach failed to meet expectations of beneficiaries. This is also reinforced by the widening inequality between the rich and poor as also amongst the urban and rural sections of the population.

In such a critical situation, there are expectations of how quickly people will get back to work, keeping in mind the need to follow social distancing. While the industrial sector will not take long, small businesses may have problems adhering to government guidelines. As regards migrant workers and those who may take time to resume their normal activities, they need to be specially taken care of, perhaps through direct benefit transfer at least till May-end.

An estimate by a well-known Left economist is: “If we add all cash transfers announced by Finance Minister Sitharaman, the amount comes to a mere Rs 34,000 crore, which is less than 10 per cent of what civil society organizations were asking for”. This is peanuts but it goes without saying that unlike the US and Europe, which can spend around 8 to 10 per cent of GDP without fear of a ratings downgrade, this is not the case with India, already suffering from a huge fiscal deficit.

Meanwhile, the ILO has warned that around 400 million (40 crore) informal sector workers are at risk of falling deeper into poverty during the coronavirus crisis, prompting calls by the government to cushion the staggering blow. In its latest report, ‘ILO Monitor Second Edition: Covid-19 & the World of Work’ observed the crisis as the “worst global crisis since World War-II”.

Nagging fear, which may turn into a reality is that small traders and farmers would have a very rough time in the coming months as labourers may not be available, plus manufacturing would have to do with two or three workers and not getting requisite experienced hands.  Moreover, tiny units, which are more or less supported by households, too would require special attention.

Resources would be a big constraint as disinvestments cannot be carried out in the first quarter of the current fiscal with stock markets having receded to very low levels. Thus, there would be a need to curtail unnecessary expenditure and focus on immediate needs. Mention may be made in this connection of banning foreign travels of government officials and even ministers, reduced allocation of funds to projects that could be delayed, reducing by say 5 per cent of defence expenditure and finally suspension of the Rs 20,000 crore Central vista construction and beautification project in Capital, Delhi. However, the decision to suspend MPLADS scheme for two years, till 2022 should have been given better thought as it would impact development activities in rural constituencies. Perhaps, the Centre would have done well to consider reducing it instead by 50 per cent only for this fiscal.

Importantly, the RBI will need and has to take a more active role by helping banks and financial institutions in the next three months. Some moratorium on loans needs to be considered and capital requirements, as far as possible may have to be met. Also there has to be a concerted strategy of boosting up the capital market by the LIC, SBI etc. as foreign investments may not be forthcoming.

While COVID-19 spells doom, the government will need to change thinking and strategy. The thrust has to be rural India. As it is, 3000 children die every day from hunger and starvation and one in four children are malnourished in the country! All this points to the need for developing health infrastructure, specially in backward districts, sub-divisions and rural India per se.

Insofar as the private sector is concerned, so far there is no information how much of financial support it will get from the government–in all likelihood meagre. As examples of private nursing homes stare us in the face, wherein these were set up by getting land at subsidised rates from the government, but low income groups can’t afford these for treatment.

The focus on development as reiterated by this writer has obviously to be on the Gandhian model whereby economic inequality should not be allowed to widen further by linking consumption and sharing resources with the masses given that one is only a trustee of what one has and not strictly its legal owner. Unfortunately, this philosophy is spoken off by politicians and corporate leaders but not followed in letter and spirit. The scenarios may vary but it is good to believe that by May-end, the pandemic should show signs of receding, at least in India. There is hope.



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Lockdown & After: Brutal recessionary phase