A realistic consequence of COVID pendamic could be counted in terms of loss of jobs, stagnant or reduced employment opportunities, increase in poverty, regressive economic impact, deterioration in incomes and disposable surplus, lesser savings, gaps in education, malnutrition , increased inequalities and so on. For the Government , this could mean lesser tax revenues, both direct and indirect .
It is not that COVID brings in recession in all businesses. While there is general slowdown in the economy across the board due to multiple factors – closure , business restrictions , shortage of raw materials and other inputs, lack of demand, inadequate liquidity , shortage of labour owing to migration , demand I elasticity and so on , there are certain sectors in which businesses and demand have grown. Such sectors include food items, goods of essential consumption, FMCG , pharma products, health care goods and services etc. the consumer behaviour has undergone change with lesser spends and more savings. While credit off take has reduced in general, it may pick up in case of small businesses and where production has gone up due to more demand , say pharma , sanitisers etc.
It is also a fact to realise that COVID has impacted the poor more than the rich – be it jobs or income, this having an overall regressive impact on economic front. We need to ensure that both, demand side and supply side measures should be taken. Further, politics can not afford economic pain at the cost of populist measures.
With so much of destruction of lives and resources all around, there is now a sincere need for a new economic blueprint – may be over and above the Budget 2021-22. Infact , this year’s Budget did not factored in the present second phase of COVID whereas we are now looking at the third phase of COVID . Given the present situation, our Government , both central and states, ought to draw a new economic framework which provides for numbers, timelines and logistics with enough of economic flexibility and cushion for adequate liquidity. This may involve policy measures for poor, middle- class, private sector, farmers, taxpayers, labour and job creation along with keeping the wheel of economic cycle moving at a desired pace.
Recently, Reserve Bank of India has announced measures in terms of debt relief, enhanced liquidity and facilitation to MSMEs to overcome financial difficulties owing to COVID . Accordingly, debt moratorium will be made available to borrowers who did not restructure their loans in 2020 and were standard accounts till March , 2021. This would be available to borrowers with exposure upto to 25 crores. About 90 percent of the total borrowers fall under this category. RBI has also allowed a special liquidity of ₹ 50,000crore for banks to lend to health care sector.
While RBI feels that the economic impact of COVID 2nd wave may not be as severe as that in 2020, rating agencies have started down grading their GDP forecasts for India . S&P Global has reduced the same for FY 2021-22 from 11 percent to 9.8 percent.