We must avert an economic disaster due to Covid-19

Indian economy will suffer due to COVID-19, but govt can ease the pain for individuals and firms with decisive and meaningful action nowFor businesses, the union government should think of delaying GST payments, tax credits, and any other policy that could support employers to keep their staff on board.  As on March 24, the Finance Minister, Nirmala Sitharaman has announced a few measures to ease the compliance and regulatory burden for businesses: increasing the threshold of default that triggers the insolvency and bankruptcy proceedings from 1 lakh to 1 crore, easing some of the rules for corporate affairs, and extending extending the deadline to pay excise and customs duty and GST. Government should ensure that the flow of critical supplies and services are uninterrupted, including food, healthcare, security, groceries and other provisions, electricity, telecom, ATM and banking.Most importantly, we need to think about how to protect the unorganised and informal workforce. While the salaried class, small as it may be, can afford to work from home and be assured of payments at the end of the month, the daily wage earner does not have the same luxury. A limited form of targeted Basic Income (not universal) using the JAM (Jan Dhan-Aadhaar-Mobile) trinity could be used to ensure sustenance. The union government can use the unexpected bonanza from the lowering of oil prices to fund some of these programmes.It is important, however, that any policy made for these emergency purposes come with sunset clauses. If not, the extraordinary measures to combat the disease and its impact will linger on far after the disease has faded from human memory.Read more here

India needs to urgently address its investment problem

Things are looking bleak for the Indian economy. GDP growth in the latest quarter was a subdued 5.8 per cent, unemployment levels are at record highs, the fiscal deficit numbers projected in the Budget are suspect and presumed to be larger, export growth hit a 41-month low in June this year, and growth in the eight core sectors of the economy remained sluggish at 0.2 per cent. On the demand side, passenger vehicle sales, tractor sales, two-wheeler sales, and domestic air traffic growth have all been declining for around six months. FMCG sales are slowing down as well. Further, the trade war and the prospect of a global growth slowdown should be giving our economic policy makers sleepless nights.

One of the core issues which lie at the heart of many of these problems has to do with India’s dwindling investment rate. In just under a decade, India’s Gross Capital Formation (investment rate) has fallen about 9 percentage points from a high of 40 per cent of GDP in 2010-11 to about 31 per cent in 2017-18. The situation has become worse in the preceding few months where announcements of new projects have drastically declined. According to the CMIE database, Indian companies announced new projects worth ₹43,400 crore in the June 2019 quarter for both the private sector and public sector combined. This translates to about 81 per cent lower than what was announced in the March quarter and a stunning 87 per cent lower than the same period a year ago.

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