Book Review

Published: Dec 29, 2021
Updated: Dec 29, 2021

Pandemic pill: Huge fiscal push needed

There can be no two opinions about the economic devastation caused by the Covid-19 pandemic across the globe, and India is no exception. In this context, the book under review has come not a day too soon. The author, Dr VVLN Sastry, is well-known to readers of ‘Corporate India’ as a regular columnist on the economy. With over 20 years of rich experience of writing on banking, investment banking, software industry and law, he has brought to bear in the publication his vast exposure in the field.

While it is clear as daylight that the Covid-19 pandemic has devastated the global economy, our economy particularly has been singularly shattered by two blows — thousands turning jobless by the closure of small businesses/factories and becoming homeless as they could not afford to stay in urban/metro areas without a steady income. Little wonder then that the country’s GDP contracted severely for the first two quarters of the last fiscal (2020-21).

It would not be out of place here to refer to the economic background in the country before the calamity struck. In this regard, the author has rightly pointed out that the economy had deteriorated significantly even before the onset of the pandemic! Its growth rate has been on a downward trajectory, especially in the last few quarters. In 2019-20, for instance, the growth rate was 4.5%, the lowest in more than 6 quarters! According to the Economic Survey, the manufacturing Industry, which till recently contributed significantly, touched a new low. Between April-November in 2019, it recorded a measly growth of 0.6% as against 5.6% recorded in the corresponding period of 2018. Also, the unemployment rate in the country last year touched a 45-year high of 6.1%. Of course, the figures pertain only to the formal organized sector. This would be much more if the informal or unorganized sector (for which figures are not available) were to be added! In short, the pandemic only added to the country’s already existing economic woes.

REALITY OF RECOVERY

Owing to the above factors, the recovery process, according to Dr Sastry, would necessarily have to be a slow and a long -drawn-out affair. It would be wrong to assume that the economy would fully revive within a short time and the situation would turn for the better. Besides, the country has the largest informal, unorganized sector, employing some 90% of the working population, contributing approximately 50% of the GDP. And it is this sector that has suffered the most after the two consecutive economic shocks – demonetisation, and a faulty and hurriedly implemented Goods and Services Act. All these shocks were felt the most in the MSME and small-scale sector as this segment has always been vulnerable mainly due to the lack of timely and requisite financial assistance. In one fell stroke, the pandemic disrupted all the factors of production, particularly in this sector. The authorities, according to him, have to address both the supply and demand sides of disruption to revive the economy on a sustainable basis, and this has to be done simultaneously. To effectively address the crisis, the author exhorts the authorities to ensure that demand from citizens is sufficiently increased through a fiscal stimulus and alongside remove the constraints in the supply side. Again, what is required is prioritizing key sectors like health, transportation, energy, rural infrastructure, agro-based industries and digital infrastructure. The authorities have also to take care and see that the ‘Atmanirbhar Bharat Abhiyan’ package ensures import substitution. One other area requiring urgent consideration is the expeditious implementation of banking reforms. He suggests creation of a governance framework as that would facilitate quick resolution and decision-making for projects relating to credit for infrastructure lending. With no positive outlook forthcoming on growth sectors such as private investment, consumption and exports, the government has to come up with large-scale fiscal spending measures for stimulating demand. Such increased spending alone will stimulate demand and bring back the ‘confidence factor’ of the private sector. In one way, the use of front-loading of public expenditure and shortterm borrowing from the RBI could go a long way to facilitate economic recovery within about 2 years. However, its efficacy would revolve around a proper plan being put in place and given a big fiscal push.

PUBLIC TRANSPORT

On the energy front, for instance, Dr Sastry adds that as 85% of the population would be in the middle-class category by 2030, the government should ensure that it makes the public transport option very attractive to them. In this regard, business districts in every town should have good connectivity and pooled car facilities should be encouraged. The government could also revive state-owned electricity firms (discoms) and make sure that there is digital intervention and ensure that citizens ‘have access to clean, affordable and reliable power supply’. Such measures would help conserve energy for other purposes. With a view to reducing income inequalities (incidentally the highest in the world, as the country’s top 1% possess over 73% of its wealth/assets), Dr Sastry has rightly suggested the universalization of the National Rural Employment Guarantee Act (MGNREGA) as a viable option.

By giving each beneficiary family a sum of Rs 7,000-8,000 in their Jan Dhan accounts (as against the present Rs 500- 1000), millions of Indians who lost their jobs owing to the lockdown would stand to benefit. Such measures would go a long way in mitigating their woes and help increase their demand for consumption goods and revive the economy. Supporting MSME units by reducing the repo rates for them would again help solve their financial worries. If commercial banks are reluctant to lend to MSMEs at the special rate, the RBI/government should step in and ensure they get financial assistance at special terms from some such windows. Further, he points out that as a gesture, the government could try reimbursing salary bills of Covid-hit employees in MSMEs.

To ensure that government finances are not unduly strained, he desires that fiscal stimulus should be initiated through fiscal measures and not through the RBI’s monetary steps. It should be targeted, for a purely temporary period and self-limiting. Regulators and concerned parties should design financial schemes that limit the impact of the fiscal deficit stimulus. The government should seize the opportunity provided by the Covid-19 crisis by encouraging more people to work from home and not having to commute to their workplaces. This would ensure less usage of fuel and consequently less imports in the long run. Again, the government should fully utilize this opportunity to build up e-commerce activities. Technology that actively supports e-commerce activities in different sectors should be given preference and priority allocation of funds. Coming as they do from Dr. Sastry, who has painstakingly analyzed the pandemic’s impact on the economy, the above suggestions merit serious consideration by the concerned authorities.

COVID-19 Impact on Indian Economy and Economic Remedial Measures in Overall Context of World Economy — Thesis Submitted to Atlantic International University (AIU), USA,
for Post Doctorate in Economics By
Dr VVLN Sastry Pub: Bright and Young Publishers (B and Y)
Pages: 260
Price: US $ 10 for Print Edition and US $ 5 for E-Copy

— V. Raghuraman