India’s Path to Economic Recovery: 5 Actionable Items

The decline of India’s Gross Domestic Product (GDP) in Quarter One (Q1- April to June quarter) of the 2020-21 Fiscal Year has been largely attributed to the shutting down of the economic activities in the months of March through May this year, owing to the ongoing COVID-19 pandemic. However, the National Statistical Office (NSO) released estimates discerning a sharp contraction of 23.8 per cent -- the potential for a long-term depression, call for a deeper deconstruction of the systemic issues being faced by the economy and further addressing the inherent risks categorically, in order to facilitate some kind of a recovery. As is, economic liquidity is down, and if urgent steps aren’t taken, the progress of decades could be lost. Here are a few fronts experts think India can work upon, to make the recovery easier.

Restructuring of debt

In order to ease the financial stress of cash strapped businesses during the lockdown, the Reserve Bank of India had provided a three-month moratorium for all term loan payments, till the end of August. Now that this time has come to end, an expert committee is working to figure out the mechanism for restructuring the loans of financially distressed firms, across more than 26 sectors. Keeping this mind, laying down clear entry timelines for the firms eligible for restructuring can ensure that this benefit is extended to those companies that were affected by the pandemic and are not violating the occasion to get out of a precarious position that they might have been in, before the pandemic as well. Furthermore, the dynamic options of repayment that may be offered to companies need to be structured such that there is no mistructuring the loans by banks to keep their balance sheets clean. And lastly, stringent checks are needed to ensure that the restructuring mechanism is not plagued by the “extend and pretend” issues, as has been observed by the Indian Express in this article.

Coordinated equilibrium strategy

According to experts, a coordinated inequilibrium strategy between the RBI and the government, is the most effective policy response in the pandemic. At the current economic outset, the ideal fiscal and monetary policy combination lies at expansion on both fronts -- fiscal, and monetary. Although this is not the evident Nash Equilibrium for the two policies (which happens to lie at fiscal expansion and monetary contraction to give money in the hands of the people while also ensuring that inflation is warded off), however since the RBI is already adopting a policy of expansion, it is suggested for the coordinated inequilibrium to be put in place by virtue of Herbert Simon’s explanation of “procedural rationality”. The coordination between the RBI and the government is essential to make this inequilibrium strategy work and remain beneficial in unison.

Support to MSMEs

When the pandemic fiscal relief package was announced by the Finance Minister, Micro, Small and Medium Enterprises (MSMEs) appeared to be the biggest beneficiaries -- and rightly so. Now, even as we are opening up the economy to recoup from the deep recession, it is essential to revive demand and put India and Indian goods in the global markets. This requires organised development and marketing support to the MSME-groups to deploy their products at scale in both domestic and international markets. This will not only give a boost to India’s 'Vocal for Local‘ strategy but also keep the gears of economic activity in motion.

Ease of doing business and investments in services sector

India has been steadily climbing up the Ease of Doing Business global rankings since 2016. This move needs to be sustained and boosted in light of the pandemic and the current geo-political and international economic scenarios. Not only can enforcement of contracts, making foreign investments viable, and enhancing the ease of doing business put India on the global map as the new manufacturing hub, but also drive its GDP on a path to recovery. It is also necessary to back the services sector in India, the highest contributor by sector to the GDP, and invest in enabling infrastructure to revive it from the momentary stop during the lockdown.

Targeting specific sectors and industries

A focussed sectoral approach towards the process of economic reconstruction will also do India good, in terms of ensuring that the industries where we have a strong hold, can be leveraged to drive exports -- such as pharma and electronics. Boosts to such specific areas -- in all the three sectors of the economy, can be a positive nudge towards bringing growth back on track. This can be further facilitated by calling for innovation, collaboration, and finding new avenues and loci for growth driving.

The recent GDP figures have come as a wake-up call to India in really moving towards churning economic output, ensuring higher growth, and minimising damages post the pandemic. This ask for a self-reliant nation has come at the time of a global crisis, and has the potential to truly push the Indian economy to its means in realising the reforms on ground.

Further Readings:

On India’s Recovery -- https://www.thehindubusinessline.com/multimedia/video/knowledge-series/video-how-quick-will-indias-economic-recovery-be/article32584532.ece

On Global Economic Rebound -- https://www.wsj.com/articles/global-economy-on-track-for-big-rebound-but-slower-grind-looms-11599807742