Options for revising Indian Economy

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The impact of coronavirus pandemic in the financial year of 2020-21 would erode all the economic value that Indians have added in the last 16 months - a full fiscal year of 2019-20 and the preceding four months. Large informal sectors, weak institutional capacity and incomplete registries of the poor make it difficult to reach the needy.     

The great contraction of Indian economy would affect all products and services which are not essential for a living. Government revenues would decline because of lower consumption and resultant lower profits. It would set the economy back by 28 months-country never seen such unprecedented in its recent history. 

It would also effect the ability of State Governments to spend on welfare schemes, which have mushroomed since the economy was liberalized in the 1990s. Governments have limited fiscal sources to support. Though agriculture remains more or less unaffected by the coronavirus as on today, it cannot offset the slump in sectors like travel, hospitality, media, entertainment, real estate, wedding - related businesses etc. 

There are two fears which caused the fall in demand - fear of coronavirus infection and the fear of future financial security. With no surety for their job or salary, people have stopped spending on non-essential products, affecting the country's industrial activity. This is where the Government should step in, not merely by giving sermons but by releasing is dues to the private sector and increasing spending on big infrastructure projects. 

While the Government has been hesitant about deficit financing option, there appears to be no option left other than this. The dipping into cash reserves of PSUs by the State Governments to bail them out, may not be available this year because of poor financial conditions of PSUs. 

Government should focus on increasing purchasing power of the people besides increase in production and exports -goods and services. Indian economy has experienced large swings in growth and inflation over the past decade. GDP growth weakened sharply during the global financial crisis due to decline in export demand from advanced economies and a slump in investment. 

What is required is relief that has an effect on the next two quarters. This brings us to the demand side of the economy- considering the glut in the market, this is not a supply issue. To boost demand, particularly in festive season next quarter, people need money through bonuses, cash schemes based on means, more than 100 days job a year under the MGNREGA and other measures. Presently, the average number of days guaranteed employment under the scheme is 45 days, far less than the legal mandate. There is also a need for tax rebates to small and medium enterprises, Dearness allowance, revision of pension of Rs.1,000/- pm from PF sources (far less than even to meet monthly needs of husband and wife) under the present market rates inflation, making filing of GST at lower levels easier, loan waivers for poor farmers, price protection and higher Govt. off-take of farm produce. This will give the extremely poor and the middle class more cash and boost demand.    

Facts, figures and reports often conceal from sight the jobless youth who wait at crossroads for a chance to earn living. Marginal farmer and his produce need a buyer. Domestic workers struggling as their employer's real income decline need support today as also the drivers etc laid off. The wheels of the economy runs on their shoulders, therefore, big ticket projects can wait; those hungry for work at home cannot. No amount of camouflaging of these issues by raising communal rhetoric can bring back the rice and roti that is shrinking on their plates. 

Following five reforms, when implemented, will push economy to new heights -

1. Increased Agricultural growth.

2. Right to uniform education.

3. Creating a National water Grid. 

4. Empower communities.

5. Increase economic stability.   

To sum up, Government should focus on raising purchasing power and demand to keep the economy growing is the need of hour.


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