India’s future economy

The job losses have been concentrated in specific sectors, but the losses have also been across the board. Some relief has been given, but more will have to be done, and for longer, writes T N Ninan

T N Ninan, Business Standard
30th January

A finance minister usually knows where the shoe pinches. Revenue is short, the deficit is too high, inflation is not where it should be, nor economic growth … the usual list. The minister also knows which wheels of the economy are squeaking, and this year they have been squeaking more loudly than is usual. The problem is that those who have lost their wheels altogether, so to speak, are the silent ones who can’t squeak at all amidst the Delhi cacophony — the millions who have been pushed back into poverty by the pandemic. This number for India is said to be the largest among all countries, and will reverse the steady if slow decline in India’s poverty headcount. Amidst the welter of the multiple goals of the Budget, be they macro-economic or sector-specific, revenue targets or reform objectives, it is this cohort that must not be forgotten.

The most recent economic indicators suggest that many businesses are on their way back to something approaching normalcy, and so the headlines are steadily more upbeat. Both the International Monetary Fund and the Economic Survey have forecast expansive, double-digit growth for next year, from the trough of this year. One must hope they are right, for it would help the finance minister to assume revenue buoyancy and therefore concentrate on the needs of this year’s primary victims. Among them are the many millions of employed people who have lost their jobs and are yet to get them back. Others have slipped from salaried jobs into the informal job market and/or part-time work, and therefore continue to suffer loss of incomes. The biggest losers have been women. Their share in the job market was already small. Now even that share seems to have halved.

Such silent crises are the most dangerous, because policymakers are usually not paying attention. As Saubhik Chakrabarti in the Economic Times and Manish Tiwari in Indian Express have written in the last few days, the Punjab economy was slipping into a multi-faceted crisis long before the new laws on agricultural marketing. These merely acted as the trigger that sparked the protests by farmers. Nirmala Sitharaman cannot but be aware of the silent crises that are more urgent today, having been created by the pandemic. What she does about them will be one of the main prisms through which the Budget “like never before” should be viewed.

It helps that the job losses are concentrated in specific sectors, but the losses are also across the board. Some relief has been given, like free foodgrain supply, an expanded budget for the rural employment guarantee scheme, and cash-flow support to small businesses. More has to be done, and for longer. That should mean a consumption booster shot through continued payouts for another year to those at the bottom of the pyramid, and still more money for the employee guarantee scheme.

It should also mean encouraging employers to give jobs back to employees, by offering suitable incentives, especially in pandemic-hit sectors. And more government expenditure in the heavy-employment sectors that have taken a hit, like construction, plus special schemes for the industrial cluster-towns from where the migrants had fled. It should mean more cash-flow support for small businesses, to be funded out of the Budget because much of the money may not come back. All this has to do with immediate crisis management, not India’s multifarious longer-term challenges.

How is it to be funded? For those among the “one per cent” who pay their taxes honestly, India is not under-taxed. Still, you have to go where the money is: Those who have benefited from the stock market boom, or who can be expected to have a substantial excess of income over expenditure, and therefore a cushion to be tapped at extraordinary times like this. The tax can be on income or wealth, or a surcharge on company profits above a threshold in relation to sales. None of the options will be popular, but the fallout can be contained if it can be credibly committed that the imposts are strictly one-time, and the money used only to deal with the Covid fallout.

A few links for further reading

Not quite flying: Why Modi govt's UDAN scheme is struggling

At least two airlines that won UDAN contracts have folded up; scores of airports and airstrips cannot accommodate flights, and policy changes make business difficult.

Are Indian banks out of the woods?

Earnings season is over at most Indian banks. Looking at the September-quarter results, one might be tempted to say the worst is behind for the India banking industry.

Fix the holes in your investments and insurance plans ahead of the new year

Make changes where required so that your investment and insurance portfolio are equipped to meet the rigours that 2020 may have to offer. With the year drawing to a close, your thoughts may have turned to taking a holiday and visiting a new destination. Or you may want to just curl up in a blanket and laze around by a bonfire. While you do deserve some rest after toiling for the entire year, one essential task you must not overlook is to check your financial portfolio and ensure it is in good shape.

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