Opportunity in the crisis | The Indian Express

Context: In order to prevent negative impacts of the outbreak or sudden spread of COVID-19 on people and economy, the government has announced certain measures. 

Background:

• Outbreak or sudden spread of COVID-19 disease was declared a pandemic by the World Health Organisation on 11 March 2020.
• The Indian government has announced a 21-day lockdown or restrictions on movement on 24 March 2020.
• On 28 March 2020, the government formed Prime Minister’s Citizen Assistance and Relief in Emergency Situations (PM-CARES) Fund to provide relief COVID-19 pandemic or other pandemics like situations that may arise in future.
• The government extended the last date for interest subvention to banks till 31 May. Similarly, farmers were given Payment Repayment Incentive (PRI) till 31 May.
• As per the International Monetary Fund, the world is going through recession due to COVID-19 pandemic, and the recession may be more severe than the recession in 2009.
• The government has extended the deadline for income tax return filing and Sabka Saath, Sabka Vishwas scheme.

Suggested measures for turning corona virus crisis into opportunity and achieving long term benefits: Though the government has announced several policy measures for preventing the negative impact of COVID-19 pandemic on people and economy, most of the measures are sufficient for achieving short term benefits for people and economy. However, coronavirus crisis offers the government an opportunity to take steps for achieving medium-term benefits.

• Review and reform current fiscal management framework: COVID-19 pandemic has grown exponentially or very rapidly in many countries of the world. Its exponential or very fast growth in India will increase fiscal spending of the government and fiscal deficit may grow over the fiscal deficit target of 3.5% of GDP as announced by the government in Budget 2020-21. The government has breached fiscal deficit target for 2019-20 and deviated from its target by 0.5% through trigger mechanism and escape clause under Section 4(3) of the FRBM Act. In Budget 2020-21, fiscal deficit for 2019-20 was estimated at 3.8%. The government has failed to achieve its fiscal deficit target for past three years. Given the continuous breach of fiscal deficit target under the current FRBM framework, the crisis caused by coronavirus should be used as an opportunity to discuss and reform current framework to achieve proper spending of public money available with the government.

• Reform financial sector of economy: Financial sector of Indian economy has faced difficulties due to rising NPAs. In the past, the challenges were mainly limited to corporate sector. But, coronavirus spread will create financial challenges for consumers as well as small and medium enterprises. The government should unavoidably resolve the issue of rising NPAs to restore the normal state of financial and banking sector of the economy. Additionally, the government should use the opportunity to bring new financing model that is based on and driven by AI technology and uses business flow data in place of assets or collaterals. This lending model based on business data of new start-ups and small businesses available on Internet through GST invoices or other mediums will help new start-ups and small businesses in getting loans.     

• Overcome weaknesses of Jan Dhan, Aadhaar, and Mobile (JAM): The government is using JAM to directly transfer cash and social safety to people negatively affected by crisis. But, JAM is not benefiting all due to problems such as lack of complete information or availability of wrong information given by bank officials. The government should focus on removing weaknesses of the JAM system.

• Agriculture-related structural changes: Restrictions on movement due to coronavirus crisis pose risks for the supply chain and require the development of one nationwide market for agriculture. The government can achieve this by removing the Essential Commodities Act and, consequently, restrictions caused by it. In August 2019, a high powered committee comprising of Chief Ministers and formed by the central government for transforming Indian agriculture had said that the Essential Commodities Act should be amended. The government should also gradually stop fertilizer and power subsidies during the next 5-6 crop cycles. It should increase prices of fertilisers in small steps by communicating early and compensating through direct cash transfer using JAM.     

• Measures for manufacturing sector: India imports 70% of its Active Pharmaceutical Ingredient requirements from China. Earlier, APIs were manufactured in India only. Government should focus on India’s pharmaceuticals manufacturing. In order to revive manufacturing capability, government should provide incentives to industry as well as support industry through regulations and trade policy.

• Measures for migratory workers and unorganized sector labourers: Coronavirus crisis has mainly affected income and social security of migratory workers and unorganized sector labourers. The crisis is an opportunity for providing portable and mobile social security benefits such as PDS, Ujjwala, pensions and healthcare through Ayushman Bharat to migratory workers and unorganized sector labourers.

• Strengthen healthcare infrastructure: Coronavirus crisis provides an opportunity for improving and strengthening health infrastructure in states, including disease surveillance systems and diagnostics labs. In US, a Centers for Disease Control (CDC) exists at the federal level. Indian government can create a similar apex institution with network spread over all Indian states. Taiwan has successfully dealt with coronavirus pandemic. This can serve as an example for other countries, including India. The government should use crisis as an opportunity for making India’s healthcare system

• National Solidarity Fund: The government should create National Solidarity Fund with the help of contributions from wealthy individuals, progressive taxation on salaries of salaried class in public and private sectors and removal of subsidies given to middle classes. The government can tax individuals holding properties of more than Rs 5 crore and gold or luxury

Way forward:

In the time of coronavirus crisis, the government should focus on fundamental structural reforms of the Indian economy and ensure the welfare of people facing negative impacts of COVID-19. The central government should adopt a flexible approach and try to achieve cooperation of states and local bodies in order to successfully turn coronavirus crisis into opportunity and achieve long term benefits for Indian people and the economy.