Dr. Syama Prasad Mookerjee Research Foundation

COVID – 19 Economic Response Towards protecting people, preserving businesses and resuming growth

The Novel Coronavirus pandemic (COVID-19), besides being a massive public health issue, is also presenting unprecedented challenges for the Indian economy. The only known method to fight the pandemic is social-distancing and self-isolation. The Hon’ble Prime Minister had called for a voluntary Janata curfew on March 22, 2020 which was later followed by a 21-day nation-wide lockdown starting midnight March 24, 2020. This tough, albeit necessary, step is needed to break the chain of infection and to flatten the curve of the spread of pandemic.

However, it is expected to have an economic cost that has not been experienced in over a century. Infact, several businesses across sectors have already started facing slowdown and this uncertainty is particularly hurting small and medium scale businesses and the unorganized sector. In the case of retail, day to day transaction activities are now limited to daily needs/essentials. Some sectors such as manufacturing facilities, supply chains, logistics and trade have cut down their operations and as a result jobs and livelihoods of labourers and daily wage earners are being threatened. All this while the risk of further spread of the virus still looms large and one can’t foresee how this may play out in the coming weeks and months.

To mitigate the impact of this economic upheaval, the government has moved promptly and swiftly and has announced mega relief measures to protect the poor and needy across the nation who are getting impacted most by this unprecedented calamity. It has attempted to efficiently deploy and leverage all possible tools at its disposal, monetary, fiscal and financial to ensure that the economic disruption is minimized and the costs to businesses and individuals are contained. Here is an effort to put some broad structure around the measures taken by the government recently:

Protecting people and their lives (fiscal measures): Measures to protect the poor and needy and to ensure that their families are able to withstand the difficulties in meeting their day to day essential needs. For this purpose, the Union Finance Minister announced a INR 1.70 lakh crore relief package under the Pradhan Mantri Garib Kalyan Yojana. These measures will bring huge and timely relief to almost the entire poor, needy and vulnerable population of the country. Important highlights of this yojana are presented below:

  • Insurance cover of INR 50 Lakh per health worker fighting COVID-19: Providing an insurance cover to around 22 lakh safai karamcharis, ward-boys, nurses, ASHA workers, paramedics, technicians, doctors and specialists and other health workers who are at the forefront of this national fight against the coronavirus;
  • PM Garib Kalyan Ann Yojana: Providing 5 kg wheat or rice and 1 kg of preferred pulses for free every month for the next three months to around 80 crore individuals (i.e roughly two-third of total national population)
  • The first instalment of INR 2,000 due in 2020-21 under PM KISAN Yojana to be frontloaded and paid in April 2020 itself. This could cover 7 crore farmers.
  • A total of 40 crores PM Jan Dhan Yojana (PMJDY) women accountholders to be given an ex-gratia of INR 500 per month for next three months.
  • Free of cost gas cylinders to be provided to 8 crore poor families for the next three months.
  • Low-wage earners in organized sector: For wage-earners below Rs 15,000 per month in businesses having less than 100 workers, the government proposes to pay 24 percent of their monthly wages into their PF accounts for next three months.
  • Support for senior citizens (above 60 years), widows and Divyang: These categories of individuals be given INR 1,000 to tide over difficulties during next three months. This will benefit 3 crore aged widows and people in Divyang category who are vulnerable due to economic disruption caused by COVID-19.
  • MNREGA: MNREGA wages to be increased by INR 20 with effect from 1 April, 2020. Wage increase under MNREGA will provide an additional Rs 2,000 benefit annually to a worker. This will benefit approximately 62 crore families.
  • Self Help Groups: Limit of collateral free lending would be increased from Rs 10 to INR 20 lakhs. This measure will benefit 63 lakhs Self Help Groups (SHGs) supporting 85 crore households.
  • For organized sector: Employees’ Provident Fund Regulations to be amended to include Pandemic as the reason to allow non-refundable advance of 75 percent of the amount or three months of the wages, whichever is lower, from their accounts. Families of 4 crore workers registered under EPF can take benefit of this window
  • Building and other construction workers welfare fund: State Governments will be given directions to utilise this fund to aid and support these workers and to protect them against economic disruptions. This will benefit around 5 crore workers.
  • Leveraging District Mineral Fund (DMF): The State Government will be asked to utilise the funds available under District Mineral Fund (DMF) for supplementing and augmenting facilities of medical testing, screening and other requirements in connection with preventing the spread of CVID-19 pandemic as well as treating the patients affected with this pandemic.

Preserving the nation’s economic engines (monetary and financial measures): Alongside the Union government, the Reserve Bank of India (RBI) also announced major policy initiatives to preserve the economic engines of the country – corporate businesses, financial institutions, SME’s and retail consumers. These measures would mitigate the burden of debt servicing brought about by disruptions due to COVID-19 and to ensure the continuity of viable businesses. Important highlights of these measures are presented below:

  • Rescheduling of Payments on Term Loans and Working Capital Facilities: Granted a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020 of all term loans (including agricultural term loans, retail and crop loans etc. This will provide short term relief to everyone who is servicing a loan.
  • Easing of Working Capital Financing: Allowed banks to restructure the working capital cycle for companies without worrying that these will have to be classified as non-performing assets (NPAs) during the 21-day countrywide lockdown.
  • Reduction in Cash Reserve Ratio (CRR): Reduced the CRR by 100 basis points (1.0%) to help banks tide over the disruption caused by COVID-19. This reduction in the CRR would release primary liquidity of about INR 1,37,000 crore uniformly across the banking system.
  • Reduction in rates to revive economic growth: Cut the key repo rate, at which the central bank infuses liquidity in the banking system by 75 basis points to 4.4% and the reverse repo rate, at which it drains excess liquidity from the system by 90 basis points to 4% to revive economic growth. This reduction is expected to reduce the interest rates across the country.
  • Additional measures to inject more liquidity for supporting pickup in growth: RBI to conduct long-term repo operations of INR 1,00,000 at a floating rate.

Way Forward – Resuming the cycle of economic growth: While the measures that have been announced till now are intended to preserve and protect individuals and businesses, it is likely that the government may come out with more proactive measures as we move forward. In that case, one should expect that the future measures could target resuming growth. Those measures could thus be intended to facilitate restarting the cycle of growth and development for rapid economic recovery once normal life resumes and the health impact is mitigated. They may include specific measures to kick-start activities in sectors which have been on the frontline of COVID-19 pandemic (travel, tourism, aviation, retail, hospitality etc.) as well as measures to boost investments in physical and social infrastructure.

(The author is a public policy professional and a former OSD in Economic Advisory Council to the Prime Minister (EAC-PM). All views are personal.)