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A Time For New Beginnings? Economic Choices Motivated By The Pandemic

It is said that all great changes are preceded by chaos.

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The current pandemic and the nationwide lockdown that it has necessitated has left many feeling pessimistic and confused about the future. Amidst this gloom, the PM unveiled a vision for the nation – one that advocates self-reliance by bringing the focus back to local level enterprises and facilitation of those at the bottom of the pyramid.

Calling the initiative Atmanirbhar Bharat Abhiyan (or Self-reliant India Mission), the government presented an economic package worth INR 20 lakh crore, effectively 10% of India’s GDP in 2019-20, aimed towards achieving this mission.

The Finance Minister, who presented this ‘Mother of all Budgets’ over a period of 5 days, was quick to clarify that a ‘self-reliant India’ did not mean cutting off from rest of the world. In fact, on the contrary, it meant taking local brands to a global level. Her announcements broadly revolved around strengthening factors of production, labour, land, liquidity and law.

Package to encourage MSMEs and support their growth

One of the building blocks envisaged by the initiative was encouraging a large segment of entrepreneurs who are spread across the length and breadth of the nation and contribute substantially to India’s GDP, employment and exports – the MSME sector.

Hitherto relatively overlooked by the formal financial sector, this segment was given special focus in the INR 20 lakh crore Covid-19 special economic package. It was slated to receive collateral-free automatic loans worth INR 3 lakh crore amongst many other measures of financial facilitation.

Further, correcting MSME norms that had inadvertently contributed to stunting their growth, the FM announced that MSMEs, which were defined by investments put in, would be also be defined on the basis of turnover of the company. She also removed the distinctions between Manufacturing and Service MSMEs.

Now such enterprises will be able to spread their wings and grow without fear of losing their special benefits. All in all, of the 15 different measures announced on day-one of the Atmanirbhar Bharat Abhiyan announcement, six concerned MSMEs.

Building a strong financial base

Always acknowledging that the financial system is the backbone of an economy, the finance minister paid special attention to safeguarding confidence in the Indian financial system and ensured that adequate liquidity would be available for NBFCs/HFC/MFIs and mutual funds.

These measures came quick on the heels of earlier measures by both the government and the RBI during the lockdown. Offering special comfort to the weakest section of borrowers, small businesses under MUDRA, which have been disrupted the most due to the pandemic and lockdown, were offered a 2% interest subvention on the smallest category of MUDRA-Shishu loans.

This, coupled with the moratorium announced by the RBI will positively impact micro enterprises by providing some relief on the repayment of loans.

Affordable housing: a multi-pronged tool even in Covid times

When the government operationalised CLSS three years ago (May 2017), it was aimed at benefiting people in the middle-income segment. However, due to its push to affordable housing, it simultaneously offers many other benefits to the economy at large – in terms of increased investment and spending on housing and job creation.

The Atmanirbhar Bharat Abhiyan included an extension of the CLSS deadline as part of the second tranche of the government's Covid economic relief package, a measure that is expected to benefit the economy, even beyond the first-round beneficiaries – affordable segment home buyers.

Back to agri-basics and grass-root level support

The economic stimulus package also contained numerous measures that focused on farm and farm infrastructure and allied activities and initiatives to support tribal folk, the farm community, migrant workers, street vendors.

While the benefits of most of these undertakings would unfold with time and be reflected over the months ahead, others will go a long way in supporting the economy at the grass root level and easing the hardship that the country is facing due to the lockdown.

Comprehensive coverage

In an attempt to cover crucial themes that did not find mention in the first four announcements, the last and final tranche of the package aimed to focus on everything from rural development to ease of doing business and support to states. Its primary aim was to create the right environment for businesses to participate in re-development of India’s economy and provide extended support to states to fill the revenue deficit gap.

The Catalyst called Covid-19

An impartial view of the entire Atmanirbhar Bharat Abhiyan could make one conclude that a strong stimulus package is necessary to ensure that the lockdown, which was implemented to save lives, does not result in devastating loss of livelihoods and thereby defeat the larger purpose.

However, while some measures are timely (urgent), others seem strategic (crucial). The more urgent measures (like minimising the current hardships of those who are truly in need) have been necessitated by the crisis, But the crucial ones (like shifting focus and taking up causes that have been long crying for attention) have found the crisis an opportune time for their introduction.

Either way, the proof of the pudding is in the eating, just as the proof of the vision of Atmanirbhar Bharat will be in its implementation and eventual efficacy. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Sudip Bandyopadhyay

The author is is the Group Chairman of Inditrade (JRG) Group of Companies

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