INDIA’S ROADMAP: BEYOND THE PANDEMIC – THE ECONOMIC FACTOR
Apala Ghosh, M.A. Political Science and International Relations studies, Independent Researcher
INTRODUCTION
The impact of this pandemic on India’s economy has been hugely disruptive, to say the least. India has experienced tragically low figures of fiscal growth since the economic liberalization of the 1990’s. Unemployment has risen to 26%, with over 140 million people losing employment, and over 45% of households across the nation experiencing an income drop compared to previous years. Up to 53% of businesses in the Indian economy will be severely affected, with several supply chains experiencing stress, and in many states there still persists a lack of clarity over what commodities are to be considered essential. A number of young startups have been adversely affected by this necessary but sudden nationwide shutdown. Through no fault of its own, India is now struggling to keep both the economy, and the people who run it, alive.
GOVERNMENT EFFORTS TO TACKLE THE CRISIS
The formation on the Covid-19 Economic Response Task Force in the month of March aims to take stock of the most affected economic sectors, with consultation process with the concerned parties already underway. Various state governments have already announced financial assistance packages for the poor in the unorganized sector. Below Poverty Line individuals and families are being provided with an unemployment allowance by the government which is getting deposited directly into their bank accounts. They are also being provided with rations, including rice, wheat, oil and sugar, etc. free of cost. The central government has announced a Rs 15,000 crore fund package for the healthcare sector. The government has also announced the largest food security scheme for 800 million people across the nation. The PM CARES health fund has been launched to collect donations that will go into combatting the situation. The Reserve Bank of India has made at total of Rs 374,000 crore available to the country’s financial system. The central government has released Rs 17,287 crore to help different states combat the coronavirus pandemic. The central government is also footing most of the expenditure for helping migrant labourers return home, with the rest being paid by the respective states.
ROADMAP FOR THE NATION’S ECONOMY IN A POST COVID-19 CRISIS ERA
However, like all things, one day this pandemic shall come to an end, and what we need to contemplate about at this hour is how we as citizens can help restart the country’s economy one this crisis tides over. The Indian government has already changed its Foreign Direct Investment policies to curb opportunistic acquisitions of Indian companies by foreign nations due to the current pandemic. With the fall in global share prices, there is concern that China may take advantage of the situation, leading to hostile takeovers. While the new FDI policy does not restrict markets, the policy ensures that all FDI from countries that share a land border with India will now be under scrutiny of the Ministry of Commerce and Industry. The Government of India is also aiming to attract companies that wish to move out of China or are looking for an alternative to China. The PM's office is conveying to the government central and state machinery to ready pro-investment strategies. A total of at least 461,589 hectares has been earmarked for the purpose. It has also been suggested to the central government that they create a credit protection scheme for Micro, Small and Medium Enterprises (MSMEs) and creation of a special purpose vehicle (SPV/SPE) to limit government exposure while providing adequate liquidity to industries.
Now is the time, more than ever, to support the ‘Make In India’ initiative being promoted by the central government. In recent decades, active state support from Beijing and Western drug companies eager to shift production to cheaper destinations has facilitated China’s emergence as the most important global source for pharmaceutical products and medical devices. India is itself dependent on massive imports of active pharmaceutical ingredients (APIs) from China. The reduction in supplies from China after the virus breakout has been accentuated by the recent decision of Government of India to limit the export of common drugs like paracetamol. The impact on the drug industry has helped highlight the national security implications of China’s dominance over the pharmaceutical industry in the country. This is serving to be a brutal wake up call for India, as it is not only highlighting the dependency of our pharmacies on China, it is also revealing the drawbacks and inadequacies of our economy. This is the correct time for India to step up and start manufacturing our own drugs and medications based on the chemical compositions of the medicines that we are used to importing from China. There are two main advantages in taking such a step. Firstly, it makes our pharmaceutical industry more self-reliant, and encourages researchers to develop medicines instead of importing them. Secondly, and more importantly, it makes medication cheaper and more accessible to the general public. Since indigenously developed medicines are more affordable as compared to imported medicines, as a result, medicines will be more widely available to the poorer sections of the population, thereby resulting in an overall improvement of healthcare.
Sometime in 2019, India overtook the US to become the second largest smartphone market in the world, after China. Of the 158 million units shipped (meaning made available in the Indian market), around 114 million, or 72%, were Chinese brands, said Counterpoint Research. Xiaomi led the pack, with Vivo, Realme and Oppo figuring among the top five, according to figures released in January. It’s been an astounding market share grab, considering most of these brands have not been in India for more than a few years. Chinese companies are now major players in a number of consumer segments. Chinese companies are beginning to dominate in some digital segments as well. It is of utmost importance that the Indian economy recaptures the technological market from China. Building of technology in India will not only increase job opportunities but will also significantly reduce reliance on Chinese imports for something as basic as social connectivity.
In coping with the dire economic crisis due to the pandemic, the central government has resorted to cash assistance to the poor as a relief measure. This liquidity will boost their consumer demand which in turn will generate economic activity, which is much needed to tackle the slump. However, this measure is temporary and may yield results for short term. Citizens have a right to minimum economic security. Hence basic minimum income is the long- term solution. Many economists world over is justifying Universal Basic Income, not only to alleviate poverty but to enhance its scope beyond poor for economic and social security. The idea may be contested on the ground that can India afford it? Where is the resource? Better fiscal planning could be the starting point. Sources estimated that in 2015-16 non merit subsidies did not benefit poor and amounted to about 5% of GDP. Non merit subsidies need to be arrested. Further imposition of new taxes is needed in sectors which are capped too long like agricultural income. All these could add up to provide the source needed to guarantee Basic income. Implementation may trigger problems but it can be worked out only after it becomes conceptually convincing to policy makers. If there is a will there is away. It can be implemented in a graduated scale from the bottom to the top, deserving sections of the population. Universal Basic Income is a necessity and may not be unaffordable. Many consider a universal basic income (UBI) programme to be a solution that could mitigate the looming crisis caused by dwindling job opportunities. UBI is also deliberated as an effective poverty-eradication tool. Supporters of this scheme include Economics Nobel Laureates Peter Diamond and Christopher Pissarides, and tech leaders Mark Zuckerberg and Elon Musk. UBI in its true sense would entail the provision of an unconditional fixed amount to every citizen in a country. The 2016-17 Economic Survey and the International Monetary Fund (IMF) had once proposed quasi-basic income schemes that leave out the well-off top quartile of the population as an effective means of alleviating poverty and hunger. The fiscal cost of a UBI pegged at ₹7,620, at 75% universality, was 4.9% of the GDP. A UBI on par with the numbers suggested by the Economic Survey could lead to targeted household incomes increasing by almost ₹40,000 per annum, since the average Indian household size is approximately five.
The political will was nonetheless lukewarm because of the costs involved. Requirements to trim some of the existing subsidies to balance the resultant deficit were also difficult political minefields for the then government. So, the proposition was finally shelved. The times now are very different. IMF has projected global growth in 2020 to be -3.0%, the worst since the Great Depression. India is projected to grow at 1.9%. Lockdowns in some format are expected to be the norm till the arrival of a vaccine. With almost 90% of India’s workforce in the informal sector without minimum wages or social security, micro-level circumstances will be worse in India than anywhere else. If universal basic income ever had a time, it is now. However, being able to achieve the ideals and aims of UBI with so many corrupt political parties involved will not be easy. Theorists say every citizen should get an equal national dividend. But giving the country’s richest individual and the poorest beggar the same benefit looks both silly and unfair to politicians and voters. Targeted transfers make political and moral sense. Cash transfers to the needy are desirable, but not equally large transfers to the rich.
India should seek to lure U.S. businesses, including medical devices giant Abbott Laboratories, to relocate from China. The government should reach out to more than 1,000 companies in the U.S. and through overseas missions to offer incentives for manufacturers seeking to move out of China. India should prioritize medical equipment supplies, food processing units, textiles, leather and auto part makers to invest in India. The need to create employment is now even more urgent after the pandemic left 122 million people jobless and forced India to shut down all major cities. It is because of this that UBI is necessary. The government has hand-picked 10 sectors -- electrical, pharmaceuticals, medical devices, electronics, heavy engineering, solar equipment, food processing, chemicals and textiles -- as focus areas for promoting manufacturing. It has asked embassies abroad to identify companies scouting for options. Invest India, the government’s investment agency, has received inquiries mainly from Japan, the U.S., South Korea and China, expressing interest in relocating to the Asia’s third-largest economy. Making unused land available in special economic zones, which already have robust infrastructure in place, is also recommended.
CONCLUSION
It is of extreme and utmost importance that India seizes these economic opportunities and rebuilds its fragile economy and becomes self-reliant. Seizing these opportunities will lead to creation of a more demanding job market, resulting in an overall upliftment of the economic conditions of the people, as it will lead to a substantial decrease in the percentage of unemployment in the nation. This will set India on the track to becoming an ever-greater economic powerhouse, with the double-sided advantage of both increased investment in the nation, and decreased reliance on foreign imports from countries such as China, leading to a positive rate of growth and improvement in the overall economic condition of the nation. A conscious effort on our part today will lead to a better tomorrow, as a positive act, no matter how small, is never insignificant, and never goes to waste. Let us come together during this time and vow to do whatever it takes to help build our economy and make it great.