This piece of economic analysis is being written on 2nd May, 2020 when the lockdown has been further extended upto 17th May, 2020, locking majority of the population of India. The streets are empty, trains and flights are not running, schools, offices and factories are shut. India is trying to fight a global pandemic, which even the richest, most developed nations are finding hard to beat.
EXTENT OF DAMAGE CAUSED
The world’s biggest lockdown that shut a majority of the factories and businesses, suspended flights, stopped trains and restricted movement of vehicles and people is now costing over Rs. 35000 crore a day as per the analysts and industry bodies. The economic impact of the coronavirus pandemic in India has been hugely disruptive. World Bank and credit rating agencies have downgraded India’s growth for fiscal year 2021 with the lowest figures India has seen in three decades since India’s economic liberalization in the 1990s. The former Chief Economic Advisor to the Government of India has said that India should prepare for a negative growth rate in FY21 and that the country would need a Rs. 720 Lac crore (US$10 trillion) stimulus to overcome the contraction. On 4 April, former RBI chief Raghuram Rajan said that the coronavirus pandemic in India may just be the “greatest emergency since Independence”. Further, the extent of the actual impact will depend upon the severity and duration of the outbreak. As the lockdown for 100 Crore population has been extended upto 17th May, 2020, the impact is going to be much deeper, pushing a number of MSME Businesses towards permanent lock-down.
GOVERNMENT HAS TO ACT SWIFTLY
Getting the basics right holds the key. This would involve first acknowledging that a large population has lost incomes, savings and jobs and second, consumption drives the economic growth which had already been weakened even before the pandemic hit. Fortunately, food availability is not a concern. FCI godowns had 58.5 million ton of rice and wheat in March 2020 and rabi harvesting would add further cushion to it, its access is. Fortunately too, the PM-JAY or Aysuhman Bharat scheme has already prepared the ground since it was launched in September 2018, covering the bottom 40% of India’s population, or 10.47 crore (104.7 million) families. They can now be quickly reached through direct cash transfers. Author has threes steps in mind to kick-start the economy which is almost on the ventilator:
Step 1: Food supply and cash to vulnerable
The first priority should be to ensure that people don’t starve or are deprived of basic necessities for survival due to job losses and a complete lockdown in economic activities. Starvation deaths have begun and long queues and long trekking for food in Delhi, Chandigarh, Patna, Badaun and elsewhere nearly a month after the lockdown began show gross failure of governance.
Cash transfers to bottom 40% population: Rs 62,820 crore
Poor demand won’t kick-start economy either. The Keynes prescription for the Great Depression of 1929 that aggregate demand = total household, businesses and government spending= is the most important driving force of an economy, is going to hold true even now in the current covid-caused depression. Demand is generated through consumption which calls for cash in the hands of a majority of people, not a few. Demand had weakened even before the COVID-19 hit. If demand for non-food items is not revived, there is little reason for industries and services to open their shops.
Step 2: Devolution of financial resources to states:
State governments are at the frontline battling COVID-19. The Central Government needs to assist them as much as possible. Since a lot of attention is being paid to tight fiscal situation, here are some easy ways to find the required funds.
Pending GST dues for FY20: Rs 69,006 crore
The first step the central government should take is to release the Goods and Services Tax (GST) dues to states. On April 8, 2020, the central government released Rs 14,100 crore of pending dues for October-November 2019. The total dues for the two months were Rs 34,503 crore. The dues for the next four months (December 2019 to March 2020) are pending too. This works out to be Rs 69,006 crore, taking Rs 34,503 as the bimonthly benchmark.
Allowing CSR donations to CM Relief Funds
In a step that defies logic and remains unexplained yet, the central government has allowed corporate entities to donate to the newly set up PM CARES fund to be treated as CSR spending while disallowed the same for CM Relief Funds. This chokes a legitimate source of fund for states. Government should immediately issue the notification to include CM Relief Fund as permitted use of CSR Funds.The sooner it goes the better. Besides, it is also counter-intuitive to set up the PM CARES fund when the PM’s National Relief Fund (PMNRF) exists (since 1950s) for the very same purpose.
Step 3: Unlocking unutilised funds: Rs 2,71,834 crore
Unused Building and other Construction Workers Welfare (BoCW) Cess: On March 24, 2020, Labour and Employment Minister Santosh Gangwar issued an advisory to all states to transfer Rs 52,000 crore accumulated under the Building and Other Construction Workers’ Welfare Cess Act of 1966 to construction workers. Official sources indicate that no progress has been made on this front so far due to administrative reasons.
Unclaimed PF: A sum of Rs 40,865 crore has been lying as unclaimed in Employees’ Provident Fund (EPF) accounts since April 2017, according to a reply to the Rajya Sabha. With accumulated interest, this amount would have grown bigger now.
Unutilised CSF and GRE with RBI: On January 31, 2020, the RBI had a balance of Rs 1,28,098 crore in its Consolidated Sinking Fund (CSF) and Rs 7,346 crore in Guarantee Redemption Fund (GRE). State governments maintain these funds with the RBI “as buffers for repayment of their liabilities” and they “can avail of Special Drawing Facility (SDF) from the Reserve Bank against the collateral of the funds in CSF and GRF” at 1 basic point below the repo rate. Since these are state government funds, maintained for future exigencies, the entire amount can be made available to them in the current exigencies of COVID-19 and lockdown by making regulatory changes. This is what Bihar’s Finance Minister Sushil Kumar Modi is hoping for, describing these funds as “lying unutilised”. That would mean unlocking Rs 1,35,444 crore.
World Bank emergency fund of $1 billion: In the meanwhile, the World Bank has granted $1 billion emergency fund to India for strengthening its infrastructure to contain COVID-19. This would mean availability of Rs 7,600 crore (at exchange rate of USD/Rs 76).
Unutilised Mineral Development Fund: The Mineral Development Fund was set up in 2015 for the welfare of mining-affected communities. It has grown to Rs 35,925 crore.
Step 4: Assistance to self-employed, MSMEs and others
The above narration makes it clear that income support to the vulnerable segments would cost Rs 1.66 lakh crore: (a) cash support of Rs 6,000 to the bottom 40% of population or 104.7 million families (b) Rs 6,000 to 144.3 million landless and (c) Rs 16,570 crore of unemployment allowance to the MGNREGS job card holders. Against this, pending dues, unlocking unutilised funds, PM CARES fund etc. would generate Rs 4.25 lakh crore: (i) Rs 69,006 crore of pending GST dues (ii) Rs 15,000 crore of health emergency fund (iii) Rs 68,487 crore of pending PM-KISAN payment (iv) Rs 1,000 crore of saving from misallocation of PMJDY (v) Rs 2,71,834 crore of unutilised funds
The rest of Rs 2.59 lakh crore can be used in the next step: assisting (i) underprivileged self-employed engaged in the informal economy (manufacturing and services) to restart their enterprises and (ii) MSMEs, hospitality, transport and other industries hit hard to open shops after the lockdown is lifted.
Patient is put on the ventilator when he faces problem is breathing Oxygen. At this juncture, the Indian Economy is in critical condition, whose survival in coming days depends on the prudent economic decisions by the leaders of the nation so as to pump Oxygen in ailing economy.
(The author is a Jaipur based practicing Chartered Accountant and can be reached on 09829063908, [email protected])