Post-Covid Crisis – India at a Crucial Juncture to Chart a Story of Growth

Author: Himanshu Ranjan

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India has a population of 1.4 billion with 724 million males and 678 million females which means 45 million of the male population are in excess. The median age of Indians is 26.7 years. That’s a significant figure as it tells that about 700 million people in India are below the age of 26.7 years. The percentage of the working-age population in India (15 years -59 years) is 66 %. It means more than 900 million Indians have the potential to contribute significantly towards the nation’s GDP. 

India’s average literacy rate is about 77.7 %. To be literate in India means a person who is aged above seven years and is able to read and write with understanding in any language. It means that about 270 million Indians (a rough estimate) who are aged above seven are not even trained to do that. States like Andhra Pradesh and Bihar have a low literacy level.  

The literacy rate among the females and their participation in the workforce is particularly a matter of concern. The government has implemented programs like ‘Beti Bachao Beti Padhao’, Sukanya Smariddhi Yojana, Mahila Shakti Kendras, among many others as detailed here. Yet, these measures can’t be enough unless the outcome is quantitatively backed by authentic data. Publishing credible data even when the problem at hand looks grim is important. 

The unemployment rate in India is close to 8 percent. In particular, the unemployment rate among the youth is very high in India i.e. close to 24 percent. The higher is the unemployment rate the less we are reaping our demographic dividend. Employability is also a major issue due to the gap between existing and required skill sets. 

To address the employability issues the Indian government started the Pradhan Mantri Kaushal Vikas Yojana, Skill India Mission as well as to support self-employment and small businesses it launched the Pradhan Mantri Mudra Scheme. However, it is reported that there are cases of bogus enrolments and the target remains underachieved. Also, cases of NPA need to be checked within a certain percentage. 

Zero poverty is the first Sustainable Development Goal (SDG 1). In India, 130 million people live in extreme poverty taking into account the international poverty line of 1.9 US dollars a day (2011 PPP basis). Poverty if not addressed properly acts like a trap that can affect further generations. 

A look at data that indicates India’s position in 2019-2020 is given below:

Infant mortality rate 29.848 (deaths per thousand live births)
Fertility rate 2.2 births per woman 
Death rate 7.309
Birth rate 17.592
Life Expectancy69.73 years
Rural Population895 million
Urban Population 471  million
Population density 419.8/sq. km
Population 1.38 billion
Population peak projection1.65 billion (2060)
Suicide rate16.3/lakh
Arable land156.4 million hectares
Crime rate 3.8 %
Carbon dioxide emissions 2.4 billion tonnes 
Trade balance  77.47 billion US dollars
Exports536.56 billion US dollars
Imports 614.03 billion US dollars
Foreign Direct Investment 50.61 billion US dollars
Tourism29.43 billion US dollars
GDP2.6 trillion US dollars
Debt to GDP89.3 %
Inflation rate 7.66 %
Manufacturing output 395 billion US dollars

Source: macrotrends.net

The trade deficit of India including the exports and imports has narrowed due to the corona crisis. The most worrying data is about the downfall in India’s GDP consecutively post 2016-17 to as low as 3.1 percent. The corona event pushed the Indian economy into a recession. The inflation levels are also high. Due to the increased borrowings, the debt to GDP ratio has also gone up. 

To tackle the economic crisis is of utmost urgency as it can accelerate or decelerate India’s growth story by a considerable margin if adequate measures are not taken. Advertising brown shoots as green shoots will not be of help. 

So far, the government of India has stimulated the economy in two different stages – a 266 billion US dollar stimulus popularly phrased as the “Aatmanirbhar Bharat” in May, a 27 billion US dollar production linked incentive in November, and another 35 billion US dollars to boost jobs and consumer demand. 

Let’s have a look at the five tranches of the first 266 billion US dollars stimulus:

  1. Businesses including MSMEs
  2. Poor, including migrants and farmers
  3. Agriculture
  4. New Horizons of Growth 
  5. Government Reforms and Enablers
Revenue lost due to tax concessions since Mar 22nd, 2020.INR 7,800 Crores 
Pradhan Mantri Garib Kalyan Package (PMGKP)INR 1, 70,000 Crores
PM’s announcement for the Health sectorINR 15,000 Crores
Emergency W/C Facility for Businesses, incl MSMEsINR 3,00, 000 Crores
Subordinate Debt for Stressed MSMEs INR 20,000 Crores
Fund of Funds for MSMEINR 50,000 Crores
EPF Support for Business & WorkersINR 2,800 Crores
Reduction in EPF ratesINR 6,750 Crores
Special liquidity Scheme for NBFC/HFC/MFIsINR 30,000 Crores
Partial credit guarantee Scheme 2.0 for Liabilities of NBFCs/MFIsINR 45,000 Crores
Liquidity Injection for DISCOMsINR 90,000 Crores
Reduction in TDS/TCS ratesINR 50,000 Crores
Free Food grain Supply to Migrant Workers for 2 monthsINR 3,500 Crores
Interest Subvention for MUDRA Shishu LoansINR 2,000 Crores
Special Credit Facility to Street Vendors INR 5,000 Crores
Housing Credit Linked Subsidy Scheme-Middle Income GroupINR 70,000 Crores
Additional Emergency Working Capital through NABARDINR 30,000 Crores
Additional credit through KCC INR 2,00,000 Crores
Food Micro-enterprisesINR 10,000 Crores
Pradhan Mantri Matsya Sampada YojanaINR 20,000 Crores
TOP to TOTAL: Operation GreensINR 500 Crores
Agri Infrastructure FundINR 1,00, 000 Crores
Animal Husbandry Infrastructure Development FundINR 15,000 Crores
Promotion of Herbal Cultivation INR 4,000 Crores
Beekeeping Initiative INR 500 Crores
Viability Gap FundingINR 8,100 Crores
Additional MGNREGS allocationINR 40,000 Crores
RBI Measures INR 8, 01, 603 Crores
GRAND TOTALINR 20, 97, 053 Crores

Source: Government of India

However, according to analysis only about INR 2 lakh Crores would be the fiscal hit to the Government. Most of the package is formed by loans, liquidity measures, and structural reforms and are supply-side measures. India was already going through a demand crisis when the pandemic hit. Its annual Industrial Index of Production Growth was already falling prior to the pandemic. Hence, these supply-side measures were not adequate to immediately boost demand. 

Hence, in the month of November 2020 the government announced the Production Linked Incentive (PLI) scheme to 10 sectors over a period of five years as shown below:

Advanced Chemistry Cell BatteryINR 18,100 Crores
Pharmaceuticals drugsINR 15,000 Crores
Electronic/technology productsINR 5,000 Crores
Textile productsINR 10, 683 Crores
Automobiles and auto components INR 57, 024 Crores
Food productsINR 10,900 Crores
White goods (ACs, LEDs)INR 6,238 Crores
Telecom and Networking ProductsINR 12, 165 Crores
High-efficiency Solar PV moduleINR 4,500 Crores
Speciality Steel INR 6,322 Crores

Source: Government of India

Finally, the government announced measures of INR 1,20,000 Crores to boost job creation by taking measures such as covering 12 percent of the contribution of an employee hired after October 10, 2020, and of the employer for the next two years in a firm with under a thousand EPFO registered employees. 

The total cash expenditure to the Government of India still amounts to be less than 60 billion US dollars if all three packages are considered. Extraordinary measures are required when faced with unprecedented situations. At such times, it would be of harm if one worries more about fiscal discipline and ratings. Hence, there is still a lot that needs to be done in order to not only recover the economy from the shock of the pandemic but also technically gear it into an accelerated and sustained growth rate of at least seven percent. 

India is at a crucial juncture in its economy where it can reap the benefits of its demographic dividend. It has all the potential to compete with the large-sized economies of the US and China given its high human capital and abundant natural resources. India needs to look at how China made a leap and surpassed India to become an economy five times larger than India. 

We can chart our own growth model but in order to do that, we must empower our human capital in terms of accessibility to energy, electricity, education, health, fast internet, among others, and rise above any form of polarizing politics. We can pull out millions of Indians from extreme poverty so that they can realize their full potential and contribute towards the nation’s development. 

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