There are not many occasions in the history of a nation when the opportunity to change the development trajectory is leveraged. This landmark has been set in India with the focus on localisation of development with the emphasis on Atma Nirbhar Bharat (self-reliant India).
This is radical thinking to change the course of economic development in India. The key element of this strategy of development is the creation of such an economic structure that is best suited to the quantity and quality of all resources available in the country. In the backdrop of this vision of the Prime Minister, measures like self-reliant development of the national economy based on its own resources, cooperation and collaboration between public and private enterprises and restitution of MSMEs and rural economy have been made an integral part of the strategy.
This effort addresses the sequencing of economic reforms, a debate that has been up for intense academic and policy discussion since 1991. The slow rate of growth of Manufacturing Value Added (MVA) in India and stagnation in its share in GDP, have attracted major discussions. Lance Taylor once observed that sequencing of economic reforms is as important as the reforms themselves. Somehow in the last several years, imports have multiplied and the industrial output and net value added have declined. In his third address post Covid on 12 May, Prime Minister Narendra Modi announced a Rs 20-lakh crore economic relief package titled Atmanirbhar Bharat Abhiyan.
The total stimulus of Rs 20,97,053 crore included the earlier measures announced by the Reserve Bank of India (RBI) worth Rs 8,01,603 lakh crore and Rs 1,92,800 crore announced by the government under Pradhan Mantri Garib Kalyana Package (PMGKP). The details of the relief package were explained by the Finance Minister Nirmala Sitharaman over five days from 13 to 17 May. The endeavour was to address some of the major challenges the economy is likely to confront with exit from the lockdown as well as those emerging from issues such as reverse migration and supply disruptions. The first tranche, aimed at micro, small and medium enterprises (MSMEs), non-banking financial companies (NBFCs) and some individuals was announced by her last Wednesday. The major actors and sectors that the five press conferences covered form an extremely exhaustive list of issues covered in the package. Among the key actors in the economy, the State governments have been arguing for and supporting greater financial maneuvering space.
Business, financial institutions, housing and agriculture and farmers may be the key actors in the changed policy paradigm. Big focus on migrant labour has been a major highlight of the present policy. Efforts have also been made to bring in community participation though cooperative banks and Regional Rural Banks, self-help groups, dairy cooperatives and fishermen’s organisations. Power sector beneficiaries include DISCOMs across states and in the Union territories as well. Infrastructure includes agricultural and rural sectors. It is also interesting to note that five different modalities are proposed to be included in the programme. First is to support social security to frontliners and vulnerable groups; second, credit facilities and liquidity support; third, financial support to infrastructure development, fourth, technologydriven reforms in education sectors; and fifth, policy reforms in labour market and specific sectors including coal, defence, minerals, civil aviation, space and atomic energy, fisheries, real estate etc. At the global level, we find that India’s response matches with other nations in several ways. Though country-specific packages vary in size, scope and sequencing, the sectors covered for policy intervention are more or less similar.
The fiscal, monetary and macroeconomic policy interventions covered in the country packages are meant for ensuring adequate supply of medicines; equipment and heath infrastructure; vaccine development; relief to unemployed, vulnerable and sick persons; ensuring essential supplies; food safety and security; tax relief; credit flows to small and medium businesses; debt moratorium; lowering of policy rates; and most importantly ensuring adequate flow of liquidity in the economy and preserving capital in the banking system through repo rate changes, asset purchase, and reduced reserve requirements. The size of fiscal stimulus packages are very high for certain countries such as Japan (21.1per cent), Belgium (13.5 per cent), Iran (13.7 per cent, Singapore (91.3 per cent, US (11 per cent), Hong Kong (10 per cent), among others. For developed countries and emerging markets, the size of fiscal stimulus ranges from 3 to 8 per cent, whereas for some African and South Asian economies it is reasonably low. Combined fiscal stimulus package for India stands at over 11 per cent of GDP, which is reasonably high considering India is an emerging country. Way Forward Quick implementation in letter and spirit is most essential in the present situation. The relevant Ministries and agencies would have to be motivated to act pro-actively, bring all the actors together for collective forward movement. Bureaucracy would have to be motivated for pragmatism and for result-oriented approach.
There are two other important factors. First, India requires an institutional mechanism of funding longterm projects with high capital. Since the privatisation of IDBI and ICICI, India has lost on industrial development financing to a large extent. The arrangements that have come up have failed in refinancing and extending risk support. The informal sector is very important for manufacturing production in India. However, very often dynamism, particularly in the exploitation of economies of scale and technological upgradation, depends on the performance of large companies, which are facing slow increase of capital stock. Second, the RBI should be encouraged to work closely with PSBs to do the necessary deep dives for stimulating the industrial growth. Government support to PSBs should not be taken for granted.
(The writer is Director-General, Research and Information Systems and a Director of the Reserve Bank of India. The views are personal)