COVID- 19 and the Indian economy

The 21-day war against COVID – 19 has just begun and will be fought by “WE THE PEOPLE OF INDIA!”. While our doctors and scientists are striving hard to make the antidote and defeat this pandemic, social distancing is the only remedy as of now. The nation is under lockdown, offices closed, factories shut down, and thus a big-blow to the already struggling economy. Though there were speculations that a financial emergency might be declared under article 360. This can’t be regarded as a rumour because the Reserve Bank of India has already made a war room to analyse the falling numbers which are happening for the first time in the history of India.

Within 15 trading sessions, our foreign investors pulled out 1.08 lakh crores. The unemployment rate was already at the peak when companies had to allow work from home, some sent their staff on unpaid leaves while some handed over the termination letters too! The biggest fear in the mind being the disease should not reach the poor and the lower middle class which would be then impossible to control. In so much of hullabaloo, let’s analyse those steps that our finance minister must take immediately to get the economy on track!

The relationship between per capita GDP and COVID2019 related mortality rates across countries is positive and significant. It is clear that we need to develop an alternative understanding of this phenomenon – for poor countries.

1. If the government is thinking about a market stabilization fund to buy stocks, then I think it will have no positive impact. The need of the hour is to spend on medical facilities, direct transfer to the poor people especially the labourers, and emergency supply chains.
2. Can you imagine the situation if the government allows the fiscal deficit to reach 7% due to the virus? To handle this, under section 17 of the RBI Act, RBI must grant the loan to the local authorities, scheduled banks for around 3 months against stocks, securities, and gold/silver.
3. All those companies who wanted to apply for the renewal of their various licenses and clearances must be allowed to operate with their previously granted approvals at least for the next 3 months. There is an urgent requirement of sanitizers everywhere. Ethyl Alcohol and Drug licenses must be processed fast and more focus should be given on manufacturing the sanitizers.
4. Businesses are waiting for the dues with the government authorities which include the GST balances and the farm subsidies with the state governments. There should be quick disbursal of this money that will boost the liquidity in the system especially during the 21-day lockdown.
5. Though the situation is still under control in India, the need for medicines and other equipment can rise anytime. Thus, all the pending approvals of application for pharmaceuticals and chemical sector must be approved on the merit basis. This is the best time for expansion and starts new units.
6. While there is an acute shortage of box containers in the country, many traders are heavily fined for late fee charges as they face delays in getting their goods cleared at the port! Thus, the late fee charges must be dropped as of now at all airports and ports. Container freight charges which are skyrocketing must be normalized in consultation with authorities.
7. There should be a provision for secure video conferencing to virtually ‘inspect’ cargo which will help in social distancing among the workers. The physical examination can be allowed only under high-risk situations. If the shipping sector is unable to pay the interest and principal for the next 3 months, it should not be categorised as NPA by RBI.
8. A six to nine months’ moratorium on all working capital principle, interest payments on loans and overdrafts bringing in liquidity allowing for business continuity, without categorizing the companies as NPAs.
9. In order to take care of the logistics, all the state governments can appoint 3-4 service providers which can take full responsibility of the warehouse and transportation operations especially that of masks, sanitizers, storing extra ethyl alcohol etc. These service providers can further supervise small operators.
10. As advised by Raghuram Rajan, in order to ensure that banks keep on lending to small and medium enterprises, the government must give away partial guarantees. Giving temporary support income is not required rather it should be substituted for better medical facilities.

The lockdown and this pandemic will teach us a lot! As rightly quoted by the PM, that this fight is bigger than Mahabharat which lasted for only 18 days. It’s time that we all stay at home, stick to the rules and regulations, and be patient. The whole world expects us to fight this virus with intelligence and better actions.