Unviable solution

Pessimism seems to have triggered panic more than the virus did as the second wave has led to a fall in demand. Suggestions like monetisation, direct cash transfers etc. to boost the demand and production are in circulation. The fear of recession seems to dissuade us to acknowledge an important fact that the Indian economy which braced against the global meltdown successfully, when developed economies collapsed, has the inherent potential to overcome the crisis. Nothing more can prove this conviction than the gush of bustling all-around economic activity in the last quarter of FY 2020-21. The resilience of our economy is often underestimated as we tend to ignore our strengths: largest youth population in the world, huge domestic consumption unlike other economies that depend largely on exports, more importantly, the inexpensive labour and, improved 'ease of doing business' (jumped to 63 from 142 in 2014 among 190 nations: World Bank).

True, we lost quite a lot of human lives; but the ecosystem of the economy, the infrastructure and the stability of our political system are pretty much intact and are ready for new challenges. The corollary is once we flatten the curve, with the help of vaccine and behavioural changes as it happened in the West, we are already in a state of 'business as usual'.

The gloomy picture, as portrayed through figures by different agencies, should not push us to despair or self-pity. There is no denying that the informal sector and the low-income groups are hit by the sudden loss of jobs and rising prices. CMIE states that until April 2021, a total of 114 million jobs were lost and unemployment is 11.9 per cent. Could anything better be expected when lockdowns continued for weeks and months? Similarly, the SBI forecast of plummeting growth rate from 10.4 per cent to 7.9 per cent also should not be a cause for panic. Demand destruction and fall in consumer sentiment are natural outcomes of unemployment that affect growth rates, but we must understand that these are only variables and are transient. Moreover, growth rates do not necessarily reflect the general health of an economy or economic development. One good news is the downward trend in positivity rates across the states. Another is a normal monsoon which is likely to ensure a bumper harvest and stability in the rural economy. In all likelihood, we will see a rejuvenated economic activity by the end of the third quarter. All that is required is a quick implementation of recovery packages by streamlining the delivery. 'Atmanirbhar Bharat' consists of sumptuous economic packages to boost the recovery of key sectors including real estate and power. To name a few, three lakh crore emergency credit to 45 lakh units of MSMEs and RS 30,000 crore for NBFCs were real stimulus. Besides, agricultural marketing reforms encouraging interstate trade, contract farming, deregulation of certain foodgrains and 1.5 lakh crore for agricultural infrastructure are best implemented in this season. The packages are good enough to address issues arising from the second wave. Besides, in comparison to last year's budget, there is an increase of 34 per cent this year (Rs 5.54 lakh crore). The capital expenditure raised by 34.5 per cent for infrastructure has potential for employment. Many more provisions in the budget push spending so that a cushion through raising incomes is ensured against a fall in demand.

Now, the worry is the fiscal deficit for FY 2021-22 which is now projected to be eight per cent as tax revenues are likely to decrease. Some quarters believe monetisation can bridge the gap of budget deficits of the Centre and states (10.8 per cent of GDP). Printing more currency initially may work to quickly allay the fears of the market but when the value of the volume doesn't match the value of production of goods and services (GDP), and in the absence of 'reserves', it will only mean fanning the fires of inflation to destabilise the economy as it was experienced by Zimbabwe where, not long ago, a basketful of currency was paid to buy ice cream. Secondly, monetisation not only weakens the Rupee vis a vis the Dollar but also affects the trade balance and foreign investment. A direct cash transfer to the poor to boost demand and help businesses survive, as suggested by some, will only lead to entitlement contrary to employment, the last thing we need in reviving an economy, at least Keynesian economists would agree.

Liquidity is not a serious issue as banks are in a relatively better position to lend despite poor progress in collections. Indian banks have already lent 2.54 lakh crore to MSMEs under ECLGS (Atmanirbhar). It is too early to resort to direct monetisation or consumption support through direct transfer. Government spending certainly is a major demand booster. The Atmanirbhar packages are yet to be fully implemented and it involves a great deal of spending. However, debt monetisation is not a wise step at this juncture as commercial banks suffer losses because RBI lends to the government on subsidised rates. Moreover, as open market operations (OMOs) are already working to control the money supply, there appears no urgency for that either. In eventuality, the window is always open for the government to secure additional borrowings. But largely, asset monetisation and disinvestment are better alternatives to borrowings, and the government should pursue this agenda. The RBI has taken the most practical and best possible decisions aimed at reviving the economy. Repo rates are kept at a record low of four per cent while maintaining the reverse repo rate unchanged at 3.35 per cent. It has also announced the purchase of bonds worth USD 16.44 billion in September and another trillion later under G-SAP 1.0 programme to boost liquidity. Alongside the monetary initiatives, appropriate fiscal initiatives are also expected from the government given the rising inflation.

One critical area of concern, often conveniently ignored, remains. The black money or the parallel economy is estimated to be around two-three times our GDP, and is proved to be a bulwark in times of economic crises in India. It is plausible the black money would play its part in boosting the demand as huge private spending will continue both by business houses and consumers. Because the cash economy is almost back and the logistics to check black money are poor in India. But this is neither a cause for celebration nor a consolation against our weakness because the social and ethical costs of black money on the political economy are disastrous. The campaign against black money must continue. Nevertheless, disparate situations need disparate solutions. As we need money to revive the economy, it will not be a sin to roll out schemes of disclosure with a minimal penalty and no prosecution (as recommended by the Joshi Committee). Hitherto amnesty schemes met with little success as people fear harassment and prosecutions as consequences. Simultaneously, we might as well take this opportunity to launch a reinforced drive to unearth black money stashed in overseas tax havens, real estate, gold trading, equity trading market, mining permits, bullion and non-profit organisations, fictitious software business etc.

The writer is a former Additional Chief Secretary of Chhattisgarh. Views expressed are personal