The Virus-Lockdown Double Whammy

While India, like the rest of the world, is grappling with the threat to life and livelihoods posed by the coronavirus and resultant lockdowns, the government has announced a Rs.20 lakh crore stimulus package to fight the economic ravages. But it is not meant to be a dole, but, a booster shot and prop to spur entrepreneurship to move towards greater self-reliance

Today, the world is fighting the coronavirus (Covid-19). So far there is no preventive vaccine or medicine to treat this dreadful virus. The effort today is to stop its spread through lockdowns, and India is no exception. India to some extent has been more successful than many developed countries including the United States of America in controlling the spread of the pandemic.

But lockdowns have serious effects on the economy. The Asian Development Bank has made a projection that the economy the world over will lose $5.8 trillion to $8.2 trillion due to the virus. The world has to fight for the economy as well while fighting against the virus. The sight of the dwindling economy is visible from the large number of applications for unemployment dole in the US and this number today is more than 3.5 million.

Fearful prospect

This sight of a falling economy is fearful for India too. Migrant labourers are seen walking from cities in far off states to their native villages. Many have died on the way before reaching their destinations. These migrant labourers have been without income since the lockdown started. They cannot afford to maintain themselves in alien cities when they hardly have any savings left with them. The host states of the migrant labourers have in all possibility failed to look after them by providing free food and shelter. The situation as of today is deaths on two fronts: deaths by Covid-19 and deaths due to the loss of livelihoods because of the lockdown.

Virus-lockdown double whammy

The economy in India had comparatively slowed down, prior to it getting hit by the virus. The GDP growth of the second quarter of FY2019-20 was 4.5% while there was a marginal increase in the third quarter to 4.7%. The GDP growth rate had fallen down badly after reasonably better figures in the preceding five years. The virus and the lockdown have served as a double whammy for the economy. The most optimistic estimation of India’s GDP has been pegged at below 1% in the current FY.

All sectors hit

The rating agencies have spoken about the complete disruption of the supply-chain and also of the loss of demand. When expenditure on virus-related processes keep on skyrocketing it is estimated that about 15 crore daily wagers, contract employees and vulnerable temporary employees would have already lost jobs due to the lockdown. Even high income people in some sectors of the economy are losing income due to the absence of work or through pay-cuts. The aviation sector, hotel industry, restaurants and sectors connected to tourism are losing business. There is falling of export orders as virtually the entire world is shut.

Banks are in no mood to go for aggressive lending to help the companies for fear of NPAs. SMSEs which are the big employers have no cash-in-hand to run their units and this is hampering jobs. If we connect the dots between demand, supply, working capital and the job market, a sad picture of a vicious-cycle emerges. And, finally, the nail-in-the-coffin is the decreasing funds in the hands of the government, due to lower taxes collected from closed businesses, thus making it very difficult for increased financial activity and expenditure by the government to salvage the situation.

“The Prime Minster never meant that we have to be isolationist, but he meant that we make ourselves strong with good products which can fit in the global supply-chain. We have to be part of the global trade from a position of strength. The nature of the stimulus provided makes it very clear that the government will be a facilitator but our entrepreneurs have to work to make the country self-reliant”

Stimulus succour

Despite constraints, the government of India has taken the lead with a huge stimulus of Rs.20 lakh crores to revive the economy. The details of the stimulus have been given by the Finance Minister and her team over five days over five sessions. The 20 lakh crore package includes the packages announced earlier in the initial days of the coronavirus and the monetary concessions announced earlier by the RBI. The stimulus in total works out to roughly 10% of the GDP and this means that it is the fifth-biggest stimulus announced by any country in the world.

The summarised position of the stimulus is as under :

Part 1 : Announcements

Part 2 : Announcements

Part 3 : Announcements

Part 4 : Announcements / Part 5 Announcements – Rs.48,100 crores

(Viability Gap Funding / Additional MNREGA allocation)

“Lockdowns have serious effects on the economy. The Asian Development Bank has made a projection that the economy the world over will lose $5.8 trillion to $8.2 trillion due to the virus. The world has to fight for the economy as well while fighting against the virus”

Focus on local

The stimulus was announced by the Finance Minister after the address to the nation by the Prime Minister, wherein he made it very clear that our country has to be self-reliant (atmanirbhar). He said, “The way ahead, lies in local. Local manufacturing, local markets, local supply chain. Local is not merely a need but a responsibility. Be vocal about local.” The Prime Minister never meant that we have to be isolationist, but he meant that we make ourselves strong with good products which can fit in the global supply-chain. We have to be part of the global trade from a position of strength. The nature of the stimulus provided makes it very clear that the government will be a facilitator but our entrepreneurs have to work to make the country self-reliant.

Freebies for the vulnerable

Direct money or free grains have been provided to only limited very vulnerable sections like poor farmers and migrant labour. Doles are limited to only those for whom it may be difficult to fight against the lockdown problems. The rest of the stimulus is for the development of business by giving credit or guarantee for credit.

The stimulus is connected to many sectors of the economy and the emphasis is that these sectors must be initially helped and later they must self-grow. The nature of the stimulus also takes care of the fiscal-deficit as money is not going out. China has made itself powerful by producing goods for both domestic and global needs and thus becoming the kingpin in the global supply-chain. India can do something better.

“There was a crisis faced by this sector when raw materials stopped coming from China. There was an alarm in the country as some lifesaving drugs were low in stock and they could not be manufactured by our reputed companies because of non-availability of basic constituents. It reminded us that globalisation is alright but being self-reliant is most important”

Caught napping over supplies

Not becoming self-reliant creates several problems and the same have been witnessed during this coronavirus period. We did not have enough PPE suits for our health sector warriors or ventilators for needy patients. It was difficult to get them from other countries. We also had problems of unavailability of basic testing kits. We got some testing kits from China but they were found to be defective. The country relied upon the genius of its own citizens and now we are producing our own PPE suits and testing kits. The good thing which emerged is that we are now exporting PPE suits as we have become the second biggest manufacturer of the same.

We have also seen that our pharmaceutical industries suffered serious problems when the coronavirus was at its peak in China. Most of the raw materials for this sector are imported from China as our companies do not manufacture them. There was a crisis faced by this sector when raw materials stopped coming from China. There was an alarm in the country as some life-saving drugs were low in stock and they could not be manufactured by our reputed companies because of non-availability of basic constituents. It reminded us that globalisation is alright but being self-reliant is most important.

We have to create strong brands of our local products by improving quality. We have to also work towards their costing so that they are attractive in the global market. We should consume our own products and that will help our local manufacturers and also help in creating jobs. When the world is eyeing the vast Indian market, then why should our products not take advantage of it? This is what the Prime Minister meant when he said we have to be vocal about local.

Only a first push

The economic stimulus is just an initiative but we will not achieve much unless all stakeholders work hard. We should think for the country and at the time of this crisis be vigilant that the cancer of corruption does not eat away the stimulus provided while percolating downwards. The mantra is that we should be proud Indians and ensure that the love for our country will not dwindle. Everybody has to work extra hard wherever he is. Corona is a big challenge and we should try to convert it to our advantage.