India needs package of Rs 5 lakh crore to save businesses from collapsing due to Covid-19
Measures taken to contain and eliminate passive transmission risk, more than the manifested active risk of the COVID-19 virus to human factors of production- both the owners/entrepreneurs and workers- have disrupted the economic and financial systems the world over. Few countries like South Korea and Japan decided to track down the carriers- symptomatic or asymptomatic of COVID-19 virus and isolate them. Most countries did not have this ability to do so or were too overwhelmed by the severity of risk. These countries decided to isolate every family in their homes to find out who is a carrier and who is not.
India also decided to lock down every human being last week in their home to contain and eliminate this risk of virus transmission. This meant that almost entire production system also got locked down. You need human labour to produce goods and services in factories and establishments and to deliver these to the consumers. Even the most automated plant cannot operate without some labour. India exempted only essential services initially. After three days, realising that agriculture produce, including food on farms, would turn into waste (rabi harvesting was going on at many places), the government exempted farm work from lockdown. Yesterday, the government has permitted non-essential goods to be transported.
Impact of lockdown on Indian economy
A good chunk of economy is still locked out. Mining is mostly closed. Construction is totally stopped. Most factories which produce automobiles, machinery, consumer durables and so on are shuttered. Millions of small factories and enterprises are non-functional. Almost all of the retail trade, transport, travel and hospitality businesses are down and out. Construction, small businesses and service establishments producing these goods and services employed crores of workers. These workers are suddenly out of job. More than 2/3rd of the production system has either stopped production totally or scaled down substantially.
On an average, about 8-9 percent of GDP is produced in a month. GDP is another name for the total national income (aggregate of all household income). As we are growing at about 5% a year currently, a month of closure of 2/3rd of production system is enough to make our GDP growth turn into negative. If workers receive even 50% of this income, loss of wages can be of the order of Rs. 7 to 8 lakh Crore. This loss of wages is a matter of life and death for most of the labour in informal sector. There is no wonder than crores of migrant workers are desperately trying to go back from their places of work to their only safety net- their villages where they might have some land to work upon and shelter to live.
The measures to save human lives from COVID-19 epidemic can result into making the economy a casualty- making both the nation and her people poor. If the COVID-19 risk to the economy is not managed properly, India might see crores of people becoming jobless and fall back in poverty. Nation’s march towards a 5 trillion-dollar economy can get hurt severely.
Fiscal response
Finance Minister has announced fiscal response in two instalments so far.
First, on March 24, FM announced a slew of measures relating to compliances, reduction in fees/interest rate on tax returns etc. and filing deadlines. Dates of filing of tax returns, applicability of Vivad Se Viswas scheme, filing of GST returns for the months of 2021 first quarter etc. were extended. These measures are procedural in nature and did not constitute any real fiscal package.
The print
