By the time the second phase of lockdown ends on 3rdMay, it will have extended for 40 days.\u00a0Consequently, the cost to our economy has continued to mount\u00a0even as the\u00a0COVID-19\u00a0curve is being flattened.\u00a0\u201cGiven the extent of the damage to the economy from the disruption to business,\u00a0the GDP growth\u00a0in FY21 will\u00a0likely\u00a0be the lowest in many decades\u201d, highlighted\u00a0Mr Chandrajit Banerjee, Director General, Confederation of Indian Industry.\u00a0The economic costs of the lockdown are rising each passing day with the impact being felt across sectors.\u00a0The situation requires\u00a0immediate, across the board intervention from the government.<\/p>\n
Under lockdown,\u00a0economic activity has slowed down significantly across most sectors. In\u00a0manufacturing, only food processing, pharmaceuticals and medical equipment are operational, while construction and mining activities have halted completely. Within services, majority of trade, transportation and hospitality remains closed, while financial, IT and government services remain partially operational. Even in power sector which can operate, significant reduction in demand owing to lockdown is\u00a0having an adverse impact.<\/p>\n
Any significant revival in investment activity is unlikely as capacity utilization levels may remain suboptimal.\u00a0Consumption demand is likely to remain lacklustre as people\u2019s incomes have been impacted.\u00a0On the external front, as economies across the globe continue to struggle with the pandemic, global trade may decline by 13 to 32 per cent in 2020, as estimated by the World Trade Organisation.\u00a0\u201cGiven the situation, government intervention becomes critical not only to sustain the economy but also to prevent any humanitarian crisis,\u201d said Mr. Banerjee.<\/p>\n
In a paper titled \u2018A plan for economic recovery\u2019, CII has laid out its growth expectation under three scenarios.<\/p>\n
In\u00a0the baseline\u00a0scenario,\u00a0GDP is expected to grow at just 0.6 per cent on an annual basis\u00a0as\u00a0economic activity is expected to\u00a0remain\u00a0constrained\u00a0due to\u00a0continuing\u00a0restrictions on\u00a0the\u00a0free movement of goods and people\u00a0beyond the lockdown period.\u00a0This will lead to disruption in supply chains, slow pick-up in investment\u00a0activity, labour shortages in the short-run and muted consumption demand on account of reduced household incomes.<\/p>\n
In the optimistic scenario,\u00a0which envisages\u00a0a faster pick-up post the lockdown period,\u00a0GDP is forecasted to register a growth of\u00a01.5 per cent\u00a0in the best case.<\/p>\n
In case of a\u00a0more prolonged\u00a0outbreak, where\u00a0the restrictions\u00a0in\u00a0existing\u00a0hot-spot regions get extended,\u00a0while\u00a0new regions are identified as \u2018hot-spots\u2019 leading to\u00a0intermittent stop and start in economic activity,\u00a0GDP\u00a0is likely to\u00a0decline\u00a0by\u00a0-0.9 per cent.<\/p>\n
\u201cThere is no doubt that\u00a0the economy is going\u00a0through turbulent times,\u00a0and\u00a0India will have to spend, for navigating its way out of the current crisis.\u00a0At this stage, the government must do whatever it takes to tide over the crisis,\u00a0\u201c\u00a0said\u00a0Mr. Banerjee.<\/p>\n
The urgent fiscal interventions, as suggested by CII should include cash transfers amounting to Rs 2 lakh crore to JAM account holders, in addition to the Rs 1.7 lakh stimulus already announced. CII has also suggested additional working capital limits to be provided by banks, equivalent to April-June wage bill of the borrowers, backed by a Government guarantee, at 4-5% interest.<\/p>\n
In addition,\u00a0the\u00a0CII paper has suggested the creation of a fund or SPV with a corpus of Rs 1.5 lakh crore which will subscribe to NCDs\/Bonds of corporates rated A and above. The fund can be seeded by the Government contributing a corpus of Rs 10,000-20,000 crore, with further investments from banks\u00a0and\u00a0financial institutions such as LIC, PFC, EPF, NIIF, IIFCL et al. This will limit Government exposure while providing adequate liquidity to industry.<\/p>\n
For MSMEs, CII has suggested a credit protection scheme whereby 75-80% of the loan should be guaranteed by RBI, i.e. if the borrower defaults, RBI should buy the loan and repay the bank\u00a0upto\u00a075-80% of the loan, so the risk to the lender is limited. SIDBI could provide the guarantee for loans to industry and trade while NABARD could provide the guarantee for loans to\u00a0agro-processing sectors.<\/p>\n
\u201cWithout an increase in government spending in the near-term\u00a0to drive an economic recovery, government revenue will dwindle,\u00a0and high deficits will continue to\u00a0be a problem in\u00a0future\u201d, said Mr Banerjee in conclusion.<\/p>\n","protected":false},"excerpt":{"rendered":"
By the time the second phase of lockdown ends on 3rdMay, it will have extended for 40 days.\u00a0Consequently, the cost to our economy has continued to mount\u00a0even as the\u00a0COVID-19\u00a0curve is being flattened.\u00a0\u201cGiven the extent of the damage to the economy from the disruption to business,\u00a0the GDP growth\u00a0in FY21 will\u00a0likely\u00a0be the lowest in many decades\u201d, highlighted\u00a0Mr<\/p>\n