Economic Highlight

New Delhi, 27 April 2020

Severe Downturn

TIME TO END LOCKDOWN

By Shivaji Sarkar

Pay or allowances cut exacerbates a crisis. It hits the purchasing power and recoils back on the economy. The crisis has been brewing and instead of sending a grim signal of DA freezing, the centre could have deferred DA payment or as in the past, credit it to provident fund instead of freezing it.

The DA freeze for Central and State government employees would amount to Rs 1.20 lakh crore. As it is not deferred payment it would hit all future payments, calculations and retirement benefits. It will be a major loss to the economy. This signals contraction as the corporate also either cuts salaries or reduces number of employees hitting about 10 crore workers in organised sector, as per official figures. In reality, the government would get back about Rs 65,000 crore -- Rs 40,000 crore as income tax and at least Rs 25,000 crore as indirect taxes -- if the DA is paid.

The unorganised has already ­thrown out over 1 crore vouched by Home Ministry statement to Supreme Court bench headed by Chief Justice SA Bobde about migrant workers. Actual may be far more. It is the largest exodus since 1947 partition.

It is the beginning of severe downturn and shall last years, says Sanjeev Sanyal, Principal Economic Adviser to the Government. About 5 per cent of companies are hopeful of revival in 12 to 24 months, reveals a study by Wills Towers Watson. The optimistic 57 per cent expect moderate to large negative business impact in the next six months due to corona lockdown.  While 46 per cent organisations expect the gloomy phase to be over in 12 months, 19 per cent expect it to last for two years.

Sanyal is silent on rising prices everyday as production and supplies are hit. A major concern of many organisations is labour shortage post lockdown as migrant workers are walking back in extreme weather conditions for survival and food. Some were buried under snow, many died a few miles away from their homes after walking for1000s of km, and some committed suicide, as per various published news reports.

According to news reports over 200 of the migrant workers across the country are said to have lost their lives till April 15. There are no official statistics to confirm these and neither are they on the list of corona heroes. This reminds us of the harshest treatment that Girmitiya or indentured labour, who left the country in mid and late-19th century to serve in British colonies, were meted out in Fiji, Mauritius to West Indies.

The deaths due to corona till April 23 are over 700. The official dole is being given to 80 crore people. However, this exposes the fact that the country’s claim of the number of people being below poverty line as per Asian Development Bank at 21.9 per cent or 23.6 per cent as per the World Bank i.e. 28 crore, needs a clear revision. Sanyal is right. He says, “We are not going to solve poverty by giving Rs 500. We are just cushioning the hit”.

The challenge is how to win back confidence of migrant workers for their return. The rural and farm economy has to be strengthened. Post-corona a new model is needed. Villages have to sustain India – decentralised cash economy, as discussed by RSS in its revival of village clusters – gram sankul yojana - in April 2015. The system has to respect the human capital. It is they who make an economy. Through toil they earn and by spending they sustain. Their wage suppression and harassment has to be replaced by giving the real cost to honour dignity of labour and sustainable livelihood.

The RBI, with great fanfare, announced it has recapitalised banks and other financial institutions with Rs 1 lakh crore cash. This does not reveal it’s depleting its reserves once again and at same time exposes the fragility of the banking system. This money is not to be spent for the poor but for habitual defaulters, at least since 2008 financial crisis.

The official Economic Surveys have recorded that 50 largest companies were the biggest defaulters leading to the collapse of the banking system and its huge NPAs since 2008-09. In reality, the large organisations do not need any support at this stage. If the government is expecting that these would create jobs, it is daydream. Recall in 2008-09 they didn’t do anything and neither are they likely to do it now. Worse, the interest rate cut is to hit the savers and geriatric.

There is no denying the sudden lockdown has hurt severely. Instead of such a strong step, India had the option to look for selected measures as some countries have done. The corona toll is almost comparable and the lockdown is virtually a major second blow since 2016 note-ban. The total loss might be more than presumed due to its lingering effect and the 23 per cent fall - $20 billion - in NRI remittances.

Then the oil price fall spells doom for the Indian workers in the Gulf. If the lower oil price, below $20, benefit is passed on to the consumers, it can help reduce costs and hardships. But falling rupee to Rs 79 to a dollar and high gold prices also have other fallouts. The Rs 43,574 crore Facebook investments in Jio telecom has helped wipe out its debt. Another Rs 7600 crore Abu Dhabi royal funding of LuLu groups of Kerala revives hope that India has still faith in foreign investors. So does Kotak Mahindra bid to raise $1 billion equity capital.

The pandemic reveals the 1991 economic model has failed and cautions a new system has to be carved out. As Bill Gates hails Prime Minister Narendra Modi as world model, chances are bright. But the revival plan has to target the common man and his free movement instead of large houses. An essential is to reduce and remove unnecessary costs like highway tolls, fast tag, many cess, fees, irrational charges, city entrance taxes and cut in GST.

The nation would revive as people toil and move freely. Restricted access -- controlled highways or facilities are the biggest revival hindrance. The poor need to be empowered and banks need to honour their savings with higher interest payments. It would help the banking sector bolster its cash reserves.

It is time, the nation ends the lockdown. Any further extension would be disastrous for all including education, farmers, transport sector -- train, flights, trucks, buses to taxis and small vendors. Diseases are not new to this country and selective isolation of areas would solve that. But policing the entire country has led to many protests, unhappiness and lack of trust, unsafe roads and even lynchings. Modi is capable of taking firm and bold decisions. If he takes the plunge, the virus would be conquered and economy would be back on rails. ---INFA

(Copyright, India News & Feature Alliance)

New Delhi

25 April 2020