Authored by Kailashnath Adhikari

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The resilient economies have a characteristic in common that they withstand the turbulence of a couple of poor quarters and stir back to recovery. However, the case with India which a couple of years ago was hailed as the fastest-growing economy seems to be appalling as it faces the second setback of an ailing economy and once in a century public health catastrophe.

The economic blow of the COVID-19 is a coadunation of the intensity and rate at which it has spread, and there is no clarity on how long it will last. The recent World Bank Global Economic Outlook predicts that most of the countries in the world will be staring at a recession in the coming months. The Indian economy was already under distress much before the COVID intrusion. The efforts which deemed promising have started looking insufficient because the lockdown has intensified the pressure on the economy and the macro indicators have started reflecting the despondency.

The 23.9 percent decline in GDP growth presents a dismal outlook. Suffering its worst economic crisis in decades conjugated by the corona outbreak, India's GDP growth is expected to shrink even further that may have a significant bearing on consumption which is one of the most influential instruments of revival. The economic downturn is not just a number game for experts to analyze and deliberate; this also implies annulment of years of growth. The shortage of cash flow, disrupted supply chain, unemployment rate at a historic high, suspended exports, labor crisis manifests the detrimental impact on the overall economy.

The global trade is going to take a considerable amount of time before redemption ensues, and the situation returns to pre-COVID levels. So, the blueprint for economic revival must be formulated around improving the domestic playfield and abating resistance in core sectors and the MSME segment, which constitute almost two-thirds of the GDP. The economic stimulus in the name of Aatma Nirbhar Bharat is a well-thought step that targets the economic growth with the national interest at the helm.

Amidst the negatives, there is a silver lining, and that is the strong leadership which India enjoys. The political stability goes in favor of the country, where the government doesn't have any handicap and can take firm decisions to overhaul the economic engine. The central government is required to strike the right balance with the state governments to clinch an inclusive growth.

The economists, experts and policymakers may have different viewpoints and approaches to the situation. Still, the underlying objective of all the thought groups is to bring the economy back on the growth trajectory. So, let us expound what makes for an ideal mix of actions that may seem neither overly idealistic nor crude?

Government driven expenditure to increase consumption-led demand

The growth factors such as private investment, consumption and exports are not showing positive outlook so the onus to induce the revival lies with the government-driven expenditure that will inject money in the system and bring back the confidence of the private sector. The investment in building resilient infrastructure, which is not only futuristic but also green, could address multiple problems such as massive scale unemployment, reduced consumption-led demand, liquidity crisis and environmental challenges. The announcement of the National Infrastructure Pipeline (NIP) is a crucial step to stimulate the progression.

Resetting Fiscal deficit

This indeed is the perfect junction when the government can maneuver to reset its federal fiscal deficit target to around 5 percent of GDP and gradually bring it to approximately 3-3.5 percent over the next 2-3 years. This could solve the immediate liquidity crisis considering that in the current situation, the direct and indirect tax revenues would falter due to the slowing down of industrial activities. The decision may eventuate to a short term inflationary pressure. Still, the liquidity struggle at the federal level may well be averted which might be an even more giant trap to evade.

Core sectors Prioritization

The focus on core sectors that can trigger strong growth stories such as Agriculture, healthcare, education and IT, etc. should be prioritized, and the policy framework needs to be reworked which allows swifter movement and reduces the bottlenecks. The Indian agricultural sector is under-tapped. The immense potential of the industry calls for structural reforms rather than the temporary corrections. Similarly, the healthcare sector also requires a priority approach by the government, including the robust Infrastructure and policy focus on components like improved primary healthcare, digitization, last-mile reach, etc.

Reinforcing the rural development

The last few months have witnessed a considerable migration of the workforce back to their native homes. Rural India on a colossal scale propounds a viewpoint to build back better. Rural Infrastructure needs to be strengthened that can spur the growth of agro-based industries, better access to markets for farmers, creation of job opportunities for the rural population, improving the purchasing power, decongestion of cities, boost to the MSMEs and promote entrepreneurship with innovation. It won't be an overstatement to make that Rural India holds the key to bounce back.

Capitalizing on the anti-China wave

The COVID pandemic has brought a robust anti-china wave globally, which allows India to exploit on this positioning. Also, the positive image of India over the years merged with the countries looking for an alternative to china give India once in a millennium opportunity to grab the preferred destination spot for manufacturing and outsourcing. The bureaucracy should toil hard and provide a conducive environment for international companies to establish their base. Reforms like rationalizing land acquisition and labour laws, logistical and trade facilitation to curtail the transaction costs are some of the factors that may lead to FDI influx.

Enabling the survival of startups, small and medium businesses by providing them financial assistance and deferring tax liabilities can potentially accelerate the growth as the informal sector employs a considerable population and the COVID has hit it severely leaving no scope for turnaround. The confidence deficit has to be bridged immediately through the mobilization of the various government schemes aimed at promoting entrepreneurship. Also, the modern business models such as waste management, green development, innovation in education and energy sector should have provision for small scale businesses to participate.

The structural reforms always take time to show results. Still, the current pandemic has not allowed the time to wait for 3-4 years instead both the short-term and long-term measures are needed to be synergized so that the human resource and natural resource can attain a perfect balance. Lastly, If the vaccine is available for masses soon, then we may experience a faster economic revival and fancy our chances of a V-Shape recovery.

Kailashnath Adhikari is Managing Director, Governance Now - A Sri Adhikari Brothers Enterprise. Views are personal

First Published:Jul 1, 2020 7:51 PM IST