India braces for post-Covid recovery: I have been part of the policy making circle in Delhi for the last three years and I watched the policy response to the first two waves of Covid-19 as it unfolded. There is a huge amount of uncertainty about the pandemic – no one seems to be clear about what will happen when the newest variants of the coronavirus strike. I am told that several places in the US is facing shortage of hospital beds. That shows how devastating Covid-19 can be even for rich nations with lots of resources and better infrastructure.
The question is how to make policies amid so much uncertainty. We are not clear if the pandemic will go away in a month, a quarter, six months, or one year, we could plan and make policies accordingly. We have the example of Spanish flu which broke out in 1918 and lasted for more than two-and-a-half years. It came in different waves – if we take the first wave as 1x, the second wave was 5x, the third wave was 3x, and then the fourth and the fifth waves were not as deadly as the first three. But it is difficult to learn from that experience as the pandemic came amid a world war, and the great depression followed immediately.
Despite this uncertainty, the globalised world is communicating well with the IMF and the World Bank playing a crucial role. The IMF has scaled down its growth for India, understandably so because of the devastating second wave in April, May, and June. The third wave is still uncertain. India is bracing for the third wave as the rest of the world. Post-Covid recovery wil depend on a large number of factors.
Uncertainties mar post-Covid recovery
This could be devastating as the economy is entering the busy season, the productive phase of the year. Not so long ago, the RBI used to have busy season and a lean season policies. The busy season is connected with the major festivals in the country that follows the monsoon rains. If the third wave hits India during the peak season, it may have serious repercussions for the post-Covid recovery.
In the last one year, the government managed to guide and sustain the economy through its Atmanirbhar Bharat Abhiyan. The credit guarantee scheme was launched, partial credit guarantee scheme for MSMEs initiated, and there were various packages for NBFCs, housing sector, street vendors, and start-ups. The production linked incentive scheme for 13 sectors was also announced. Mega investment textile parks, the national infrastructure pipeline, economic corridors, and the National Rail plan were unveiled. All these kept the economy ticking.
The Reserve Bank of India has also taken several steps to ensure liquidity in the system. It could have been better if it brought down the policy rate to 4%, instead of holding it steady. It has offered several incentives to exporters such as easier deadlines. It kept the asset classification standstill, giving corporates some breathing space. The RBI kept an accommodative monetary policy stance.
The policy has been accommodative also for MSMEs, NBFCs and the corporate sector as far as asset classification norms are concerned. To ensure steady flow of resources. large exposure framework was widened so that banks could lend more. I was chairman of Punjab and Sind Bank till some two months back. At the top of a public-sector bank, I could see the corporate sector trying to tighten up. If the corporate sector tightens up, the consumer demand and the purchasing power dry up. They postpone capital expenditure, reduce fixed costs and spend resources just enough to ensure survival till things improve.
The banking industry is very careful watching post-Covid recovery. Some promoters went ahead and raised private equity to save their companies. Some liquidated non-core assets. This is the time Punjab Sindh bank too looked at monetising non-core assets. This brings me to the last point which I want to highlight. From March 2020, the RBI fully supported the steps taken by the government. Now, the situation presents an opportunity for the corporates. This time the whole world is in a crisis and we have to look at how do we now wriggle out of the crisis.
Asset monetisation plan can be a game changer
Now the asset monetisation plan of the government is a great opportunity for the corporate sector striving for post-Covid recovery. Look at the sectors in which the government has announced the programme — roads, railways, power transmission, power generation, telecom, national gas pipeline, petroleum products, warehousing, mining, airports, seaports, sports stadiums and urban real estate.
The corporate sector in this country can find an area in which it can participate with the government and take the benefits. These are brownfield projects, that means capital expenditure is not required. It’s all there, and all that you need to do is bid for it and start participating. The government is open to 25–30-year contractual assignments.
If India were to become a $5 trillion economy, the effort has to come from the corporates. Chinese and Indian economies were of similar size in 1978. But now 9,60,000 foreign companies are operating in China, making it the second largest economy in the world worth $12 trillion. That is the power and strength of the corporate sector and India neds to emulate China in this area.
The government must realise that the sector with maximum forward and backward linkages is the housing sector. And this sector has nearly 270 forward and backward linkages. The stock market is touching dizzy heights which means there is no dearth of purchasing power. In such a situation, the Union and state governments should start housing projects. Once that is done, 270 industries will get activated. They will generate jobs — jobs mean salary, salary means purchasing power. In addition to the national asset monetisation plan, a housing plan can revive the economy.
(Dr Charan Singh is a renowned expert in monetary policy, banking and international trade. He is the chief executive of EGROW Foundation, a Noida-based think tank. This article is based on a speech made by Dr Charan Singh at a webinar on corporate strategy organised by Policy Circle.)