India has experienced one of the world’s strictest lockdowns. Closing down the country was relatively easily done in a single stroke, but opening up the economy needs to be a lot more calibrated. Government’s declaration of the 20 Lakh Crore Financial Package is a much appreciated first step to restore liquidity; however, several subsequent steps are required to get the wheels of the economy moving again.
The present situation is rather unique as we are witnessing supply shock and demand shock simultaneously. While the government has started opening up the supply chain, there is no surge in demand. This problem is not new, if we take a step back, we’ll see that even before the crisis, the Indian economy was struggling with the issue of aggregate demand, and the pandemic further intensified the problem.
Businesses will not simply open up because the lockdown curbs have been relaxed. They need the right inputs, they need liquidity, availability of labor and most importantly, they need to see a surge in consumer demand. The whole chain needs to be fixed comprehensively.
To drive consumer demand, it is imperative to put money back in the hands of the people. The government has not done enough in this aspect and there is ample scope to release additional stimulus back into the economy. Although this is an essential requirement, it will prove futile if not followed up with structural reforms that increase employment. Indian people need more jobs. If they get employment, automatically, the economy will pick up speed.
MSMEs and ancillary industries are in tremendous stress due to the pandemic. This sector is in ardent need of funding and support. Reviving the MSMEs will also help in curbing unemployment considerably. The government must take some stable policy initiatives to assure investors. At the moment, people are worried about their financial wellbeing and hesitant to make commercial investments. Restoring their confidence is of prime importance.
Many smart economies recommend incentivizing multiple sectors to pave the way back to normalcy. For instance, a sector like construction, apart from being a large employer, is connected with multiple other sectors like cement, steel, furnishing, lighting, décor, etc. and is capable of providing a monumental thrust to jumpstart the economy.
The crisis in India is far from over and we will eventually see several other phases of COVID. The mass exodus of about 20 million migrant laborers is hence an issue that needs addressing. These people used to work in cities and send money back to their homes. Today they have returned to their homes without any money. If their earlier livelihoods are not made available again soon, the situation can become rather grim. Offering some micro SME opportunities to these people with government support can prove to be highly beneficial.
India is a large country, home to a huge population. With a tumultuous global economy and a raging pandemic, mobilizing the Indian economy cannot be instant. The recovery will be slow and heavily dependent on structural reforms and stimulus from the government aimed at providing comprehensive systematic solutions to fix supply-demand issues at a holistic level. So much so, that we might call COVID, an accelerator of reforms as well.
Views expressed above have been gathered from a panel discussion of eminent industry panelists at The Economic Times GBS – Reimagining Business Series 2.0. The views were offered by Bharat Puri, MD, Pidilite Industries; Piyush Singh, Senior MD & Lead India Market Unit, Accenture; Rashesh Shah, Chairman & CEO, Edelweiss Group; RS Sodhi, MD, Amul; and Umang Vohra, MD & Global CEO, Cipla.