The hard choices that we need to make to ensure economic stability

The hard choices that we need to make to ensure economic stability

Indian economic recovery prospects have gone from bad to worse after the nation emerged as a new global hotspot for the coronavirus pandemic with more than 5 million infections.  Economist and global institutions have recently cut India’s growth projections from already historic lows as virus continues to spread. Although, as per the recent data, economic activities have been picking up month on month now with the reopening.  However, the recovery is likely to be gradual as efforts towards reopening of the economy are confronted with rising infections.  People are now eying upon the festive season ahead but no one can predict whether momentum will pick up during the peak season or not. The only positive factor we have been witnessing is that agriculture sector at least showing signs of a good growth in current fiscal with the grace of a bountiful monsoon this year.  We will be expecting some boost in rural based sectors. The recent bill passed by central government for agriculture reforms will greatly help farming sector also in long run.  

The earlier stimulus announced by central could help to stabilize supply side only.  The only way to bail out our economy now is to boost the demand.  People from all sections are insisting for the government to come out and spend more to boost the demand and bring the economy back on track.  However, the question arises, can India afford to spend more and expand its fiscal deficit at this juncture when government is already having overburdened debt and fiscal deficit. Banking sector as a whole is also struggling for liquidity with increasing NPAs and cannot afford to distribute freebies. India is a developing country and we cannot compare our economic conditions with US or other western countries.  It’s a very peculiar situation for us and we have to think differently and act in accordance with the economic conditions prevailing in the country. We have to look for some unconventional methods to deal with the situation.  Central government, state bodies, local bodies, corporates and Indian public all will have to act in some different way so that our country may come out soon from the evil effects of the pandemic covid-19. Some suggestions are being given hereunder in this context which might work in our country’s favor.

GOVERNMENT ROLE:

As written above, the central government have their own limitations and are not in a position to increase their fiscal deficit beyond certain level.  However, certain points are highlighted hereunder through which they can raise huge funds which can be utilized to boost the demand for bringing back the economy on growth track.

(1)   Stop funding loss making PSUs and sell them out in the market irrespective of their low valuations.  Many loss-making PSUs are having a large chunk of land bank which can be monetized for funding. Its time now for our country to get rid of PSUs like BSNL, MTNL and AIR INDIA. Our government have already spent billions of rupees on these white elephants and now we cannot afford more to spend country’s money on these public enterprises. Government should act in different direction and get rid of them instead of selling good gems like BPCL, LIC and other profit-making public enterprises.

(2)   As per the news published in Times of India in March 2020, Value of enemy properties stands at Rs. one lac crore as officially declared by Indian government.  The enemy property refers to any property belonging to, held or managed on behalf of an enemy, an enemy subject or an enemy firm. This huge $15 billion valued property is lying idle since long. This government has majority in both the houses of Parliament and if they wish they can easily move a bill to monetize the same for the nation’s interest.

(3)   As per the estimate, Indian people had purchased about $350 billion worth of gold officially/unofficially during last twenty years.  It is an opportune time for government to come out with an amnesty scheme for this gold utilizing the same as a security for external borrowings from International Institutes. Even if only 15% of the same comes out in middle, our government will be having about $ 50 billion worth of gold security for external borrowings.  No rating agency can down grade our nation if we borrow more with the support of this gold. The amount borrowed so can be utilized (1) to stimulate infrastructure and construction sector which will help in creating more jobs and demand for many core industries (2) re-capitalize banks for creating liquidity in the banking system to compensate them for increasing NPAs due to the  pandemic. 

(4)   Indian middle class is the back bone of our economy and it contributes greatly to support the consumption theme of our country. Due to the pandemic covid-19, the class as a whole suffering badly in the form of business losses, job loss etc.  It is the time now for the government to pay back something to bail them  out from these vulnerable financial conditions. Government can offer a tax holiday minimum for six months to middle-income group for increasing the spending capacity of the same.  This will definitely boost the demand and help greatly bringing back the economy on growth path. The government even come out with some bold announcement relating to expenditure-based tax incentives for the individual tax payers.  

(5)   Lastly, Modi government have not yet come out with any plan for bringing back black money lying abroad as promised by them. Our government should come out now with a bold plan of amnesty scheme for the same. “The color of the money needed to revive the Indian economy should not matter at a time we’re all trying to pull ourselves out of a ditch".  

CORPORATE ROLE:

Only efforts by the government will not be sufficient to fight with the economic challenges the country has been facing owing to the pandemic covid-19. Indian corporate world shall have to play an important role.

(1)   It is unethical at this moment to retrench their employees. We understand that the recession is likely to remain for few quarters and if corporates do not cut their costs, their bottom-line would be affected badly. However, they must also look at the other side of the mirror. If they retrench their work force, at the one hand they will be losing a trained and experienced people and on the other hand they are doing injustice for their employees who had contributed a lot to make their enterprise successful. They must provide extra support to their employees by way of providing medical and financial support. In this way, not only they will be gaining the confidence of their staff but also contributing a lot to the nation to overcome the problems relating to unemployment and job losses.

(2)   The corporate can utilize the personnel strength for expansion, innovation and quality improvement at this point of time. In this way they will be able to prepare themselves for future challenges which they would be facing post covid-19 era. Some IT companies have been adopting this practice. They are not only retaining the existing man-power but hiring fresher very aggressively as well. 

(3)   Our economy cannot grow unless we increase our share in global economy. Increase in exports will be the only way to increase manufacturing activities. Big corporate houses should come out with huge expansion plans to make their sizes internationally viable. Indian manufacturing sector shall have to adopt new technologies and innovations to compete with the other global players. Spending heavily on capital expenditure and expansion plan will provide large employments to people overcoming the problem of un-employment to some extent. Employment generation in corporate sector will support immensely to boost the spending power of working class. Indian government must also provide some tax soaps for capital expenditure to attract more and more corporates to come forward for building up big sizes.

 

We can only hope for the government to react for taking bold decisions and at the same time expecting some aggressive measures to be taken by our corporate sector.

-Rajendra Jhanwar