Critical but stable

3 months ago 9

This year, governments across the world had a difficult choice thrust upon them. Covid-19 allowed them to save either the maximum number of their citizens’ lives or the highest number of their livelihoods. Like most, the Indian government chose the former. In doing so, it faced one of the most challenging situations the country has seen post-Independence, the economy spiralling deeply into the red. While most analysts say that the bad run will be limited to a few quarters, ruling out a full-blown recession, there is no getting away from the fact that India’s growth rate is deeply in negative territory. And while there are debates over the size of the impact, whether the country’s growth rate has fallen by five per cent or much more, the economic damage done by the nationwide Covid-19-induced lockdown and the subsequent localised lockdowns in some areas has indeed been enormous.

It is then no surprise that economic issues were at the top of participants’ minds in the india today Mood of the Nation (MOTN) poll, conducted during the lockdown. A whopping 63 per cent of those polled said their incomes had fallen recently, with 22 per cent saying that they had lost their jobs. Almost all sectors of the economy, barring agriculture and to some extent the supply of ‘essential goods’, came to a standstill in the first month of the lockdown, from the midnight of March 24-25 onward. The restrictions on movement and the unclear definition of ‘essential goods’ left the logistics sector severely impacted, with thousands of trucks stuck on highways. The myriad notifications from the Centre added to the chaos, with policy confusion causing state governments and local authorities to interpret central norms in their own ways. Even after industries were allowed to partially reopen in non-containment centres, strict physical distancing norms meant that businesses suffered supply chain disruptions on top of poor demand. Cash flows have taken a major hit, and companies from the hospitality and airlines sectors to those in manufacturing and retail have resorted to job cuts, the pruning of salaries and freezes in hiring. A report by manpower firm Global Consultants states that India is set to lose around 130 million jobs due to the pandemic, 40 per cent of those being blue-collar jobs.

Rajeev Dubey, a former president of human resources (HR) at the Mahindra Group and now an advisor to the company on people matters, says there are high levels of fear and uncertainty among workers. With companies laying off even experienced employees, stress levels are quite palpable, most so in sectors where demand has been destroyed like hospitality and travel. IndiGo, the country’s biggest air carrier by market share, has laid off 10 per cent of its workers or around 2,300 people. A report by Crisil points to a far-reaching impact of the lockdown on the airline industry, despite services partially resuming, the ratings agency says India’s air passenger traffic is likely to shrink in both the domestic and international sectors, by 40-45 per cent and 60-65 per cent respectively. The manufacturing sector has also been in deep trouble, with production even at steel and heavy engineering majors still around half what it was in the pre-lockdown phase. It is then only to be expected that 23 per cent of those polled said unemployment was the single biggest failure of the Modi government. Moreover, 54 per cent of those polled either did not see things getting any better in the next six months, or were uncertain of the future.

However, despite the grim outlook, the public at large seems to support the Modi government on its handling of economic matters, with an overwhelming 71 per cent of those polled rating its performance in this area as outstanding or good. Overall, the government seems to have conveyed the impression that it is on top of the situation, be it in tackling the virus through the nationwide lockdown or handling the ensuing economic crisis through the Rs 20 lakh crore combined stimulus by the government and the RBI (Reserve Bank of India). While the stimulus does not appear to have done much for industry, despite, for example, the Rs 3 lakh crore loan package for MSMEs (micro, small and medium enterprises), agriculture and the rural economy seem to have fared much better. In this, a good rabi harvest, a massive procurement drive by the government and initiatives such as the Pradhan Mantri Kisan Samman Nidhi Yojana, which gives farmers Rs 6,000 a year, seem to have helped boost rural demand. That, in turn, might have created a feelgood atmosphere in rural areas, though there are fears that this spirit may not be sustainable. On this matter, opinions appear to be divided, while 48 per cent of those polled said their economic status had improved since Modi took charge in 2014, 42 per cent said it had remained the same, while 10 per cent said the situation had deteriorated further. It is noteworthy here that the percentage of those who said their economic status had remained the same since Modi took charge has increased from 29 per cent, 21 per cent and 18 per cent in the MOTN surveys of Jan. ’19, Aug. ’19 and Jan ’20, respectively. The shift to this perspective has been from those who had earlier felt their economic status had, in fact, deteriorated under the Modi government. In the Jan. ’2019 MOTN poll, those who felt their lot had deteriorated under Modi were 26 per cent of those polled; in Aug. ’19 they were 31 per cent, and in Jan. ’20, they made up 27 per cent of those polled. It is in this group that a steep fall has taken place, to 10 per cent, in this edition of the MOTN. One of the reasons why this change in perception is happening could be the slew of measures announced by the finance minister in the days following the lockdown, especially those targeted at the rural areas.

As many as 43 per cent of those polled said that the economic performance of the Modi government has been better than that of the Congress-led UPA government, with 45 per cent saying it was at par with the UPA’s performance. There is growing support visible for the Centre as well, in the previous Jan ’20 MOTN survey, 30 per cent had rated the Modi government’s economic policies as worse than the UPA’s, that number fell to 10 per cent in this survey. Here again, the reasons for this positive sentiment could be the bumper rabi harvest, the record kharif planting and the Centre’s rural push that has put more money in people’s hands.

It is often said that one should never waste a good crisis, since every crisis also offers an opportunity for a creative response. For the government, the Covid-19 pandemic, disastrous as it has been, has also presented an opportunity to announce bold economic reforms. These include Prime Minister Narendra Modi’s ‘Aatmanirbhar Bharat (Self-reliant India)’ pitch, vowing to take India toward a robust self-reliance by bringing about structural changes in land and labour laws and improving liquidity to kindle growth. The four pillars of the government’s strategy involve developing efficient infrastructure, developing technology-driven systems, making use of the country’s vibrant demography and boosting domestic demand. Despite the economic distress caused by Covid-19, these announcements have contributed to the perception that the distress is indeed being handled well.

One of the biggest targets of the stimulus package was the MSME sector, which comprises 60 million firms, contributes about 29 per cent to India’s GDP and employs about 120 million. This sector was among the worst-hit by the pandemic and the following lockdown. On May 13, finance minister Nirmala Sitharaman had announced six specific initiatives targeted at the MSME sector. These included Rs 3 lakh crore in collateral-free loans, 100 per cent credit guaranteed, expected to benefit 4.5 million units; Rs 20,000 crore in subordinate debt for stressed MSMEs, which could benefit 200,000 firms, including those with outstanding loans that had been classified as stressed or non-performing assets and a Rs 50,000 crore equity infusion for MSMEs through a fund of funds, set up with a Rs 10,000 crore corpus, among others.

Other announcements made by the finance minister included a Rs 30,000 crore special liquidity scheme for non-banking financial companies (NBFCs), housing finance companies and microfinance institutions (MFIs), a Rs 45,000 crore partial credit guarantee scheme for the liabilities of NBFCs and MFIs and a Rs 90,000 crore liquidity injection for power distribution companies (discoms), among others. Firms in the real estate sector were also given some reprieve. For example, while the relaxation of compliance timelines under RERA (the Real Estate Regulatory Authority) gave breathing space to developers whose projects were frozen by the lockdown, the one-year extension of the credit-linked subsidy scheme, which subsidises home loans taken by urban residents below an income threshold, was expected to boost demand for affordable housing. When asked if they would be willing to take a loan under one of the various government schemes implemented to tackle the economic crisis, 58 per cent of respondents said indeed they would, while 34 per cent answered in the negative.

Meanwhile, the RBI has also taken a number of steps to improve liquidity, including allowing banks to offer consumers three-month moratoriums on loan payments and infusing Rs 1.12 lakh crore in liquidity into the banking system through long-term repo operations alone since the start of the lockdown. While it is still early days to assess the impact of these measures, some of them will bear fruit only over the medium to long term, the general public seems largely content. As many as 55 per cent of those polled said the stimulus package was enough to change their economic condition, while significantly less, 33 per cent, said it was not. Nonetheless, there is still a section of the public that feels more should have been done, especially in terms of putting more money in the hands of those who needed it. For the MSME sector, the need of the hour was support in paying salaries and interest on existing loans, not access to fresh credit.

The Aatmanirbhar Bharat campaign seems to have caught the imagination of the general public, one way or another. Over half, 53 per cent, of those polled said that it is a timely campaign, with 38 per cent of the opinion that India does not have the capability to become self-reliant yet. (The government’s original ‘Make in India’ initiative flopped thanks to a barrage of policy delays and bureaucratic hurdles.) However, in the post-Covid-19 world, where many countries would be focusing inward, possibly even raising barriers to trade, a new ‘self-reliance’ approach may be just what the doctor ordered. What will be critical, however, is how India goes about building its economic backbone, the MSME sector, an achievement that China’s rise shows as both possible and necessary. Soumya Kanti Ghosh, chief economist with the State Bank of India (SBI), has said that India could see incremental exports growing in the range of $20-$193 billion in the five-year horizon, but only if it builds capabilities and captures market share from China. There’s a long way to go in this regard. A note from SBI in May this year said that India, despite improving its ranking in the World Bank Ease of Doing Business Index, has been struggling even in its traditional export markets. Experts highlight that just making things easy for large foreign investors doesn’t help grow the economy, nor does it increase jobs in the hinterland. India will need to put specific outcome conditions on foreign investments, again, like China has done. Others argue that we should learn from the failure of partial change in regulations, special economic zones, and build zones completely de-linked from the existing industrial and labour laws, with much-simplified compliance procedures. They say that the government should go beyond the ‘boycott Chinese products’ slogans and build world-class capabilities in areas it has the potential to, in order to become a competitive player on the global scene.

Despite the appreciation the government seems to be getting for its handling of the economic consequences of the pandemic so far, there is still a lurking feeling that government policies have helped only big businesses and ignored small businesses. One third of those polled (33 per cent) said that its policies have helped only big businesses, while 45 per cent said both have benefited.

Despite all the grim news flowing in on the economic front, the MOTN survey suggests that the Modi government is successfully conveying the idea that it is implementing various measures to remedy the situation, as well as build India’s self-reliance in the long run. That goes a long way towards explaining the substantial backing the Centre has received from respondents in its handling of the Covid-19 crisis so far. However, that sentiment could well turn sour if the economy remains in a protracted phase of negative phase and the situation on the employment and income front worsens. This leaves no room for complacency. The government must continue to fight the pandemic and its economic aftermath with all the weapons that it has at its disposal.

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