Issue :   
May 2020 Edition of Power Politics is updated.
Issue:May' 2020


India needs jobs, not doles !

Malladi Rama Rao

Even as the month of April was drawing to a close, there was no clarity on what the response of the Modi government is to its biggest challenge in its second term on the Raisina Hill. Well,

Prime Minister Narendra Modi interacts with Parliament floor leaders of Opposition and other parties via video conference from New Delhi

Prime Minister Modi is everywhere on the small screen every day but has not gone beyond the rhetoric, which is not reassuring for the man in the relief camp or locked at home.
Call it absence of a road map or dub it procrastination on the plan to breathe life into economy, it all boils down to government's failure to grapple with the recognition of the nature of the challenge thrown up by Corona Virus and its impact on the day-today life in rural areas.
The clamour from metros like Mumbai, which have become El Dorado's of India for special trains to send back the migrant labour is not dying down. In fact it is increasing. This means the bureaucracy, which has emerged as Modi's trusted hand tool to deliver relief in these pandemic days has failed to come to grips with livelihoods. Its penchant rooted in the license –permit raj days of Fabian Socialism is centred in doles that Sonia era programmes like Mgnrega have come to represent. Ground reports say labour in camps and urban slums is unwilling to sit idle on dole. They want their livelihoods to be protected.

Rahul Gandhi Put simply, the government responseto the crisis is misplaced. Its direct transfers to Jandhan is a good talking point but it is neither here nor there for the poor households in urban and rural areas who find their monthly expenditure is going through the roof. The suggestion for a GST cut and new deal to SME sector by Rahul Gandhi, who has an image deficit, makes sense. By his insistence for at least 3.5 per cent of GDP on Corona relief bill, he has not redeemed his image as a Pappu and as a hostage of inhouse economists with no feel of the ground realities. That is his problem, not of the Indian economy that is staring at ruins of liberalisation, not of India politics hammered by Modi brand.

Donald Trump India's relief package so far — of ₹ 1.7 lakh crore — is less than a percentage of its GDP. Maverick President Donald Trump has set apart almost upto 10% of GDPto stimulate the American economy.
India may style itself as the economic super power in the making but it is nowhere nearer the big daddy of the market economics.

Mamata Bannerjee So as the next best way out, industry bodies are willing to settle for a stimulus package that ranges between Rs.14 and - Rs16 lakh crore, while some economists have called for a ₹ 20 lakh crore package.The Centre must announce a package of 6% of GDP, thunders Mamata Bannerjee, the chief minister of West Bengal, who is locked in a bitter fight with Delhi even in these virus days. Her demand works out to around Rs 10 lakh crore. Clearly Prime Minister Modi has no big money. Neither he nor his economic egg heads have offered an insight into their thinking at the time of writing. And if they heed the suggestion of former Finance Minister Yashwant Sinha and ask the RBI to print more currency, India will find a new wave of inflation along with unfolding recessionto the dismay of the poor, and BJP's mainstay – the urban middle class.

Yashwant Sinha As of now, the Finance Ministry is concerned over liquidity. And Minister Nirmala Sitaraman announced Rs 1.70 lakh crore relief package 36 hours after the prime minister announced a nation-wide lockdown for three weeks.

Nirmala Sitaraman Her announcement was dubbed as a case of 'better late than never' but the question that remains unanswered is why Narendra Modi's firman for lockdown did not come with a detailed relief announcement that could have prevented, or at least minimised, the fear and panic that followed his broadcast to the nation.
A crisis looms in the agriculture sector with no vision for lifting the Rabi crop. It will be a tragic irony if the expected bumper crop results in food shortage.
Before Sitharaman's relief package came on the scene, some states had already announced their packages. The Rs 20,000 crore package announced by perennially cash strapped Kerala attracted wide appreciation since it exceeded the announcement of Rs 15,000 crore central package forboosting healthcare measures. And the Central Vista Development bill of Rs 20,000 crore—a pet Modi project which his critics consider as wasteful show.

Shaktikanta Dasdid And the Reserve Bank of India (RBI) has done its best. Unlike his celebrated economistpredecessors, Governor Shaktikanta Dasdid not hold out any homilies. Instead he has demonstrated what the Central Bank can do by moving out of its comfort zone at times of crisis.
His April 17 announcment added Rs 1 lakh crore of funding support.
It also offered enhanced temporary loan facilities to cashstrapped states through ways and means advances (WMA).
It has doubled the WMA limit to provide greater comfort to states for undertaking Covid-19 containment and mitigation efforts. The increased limit is valid till end Sept 2020.
But there is no readiness on the part of the banks, which are mostly government owned to loosen their purse strings.
It shows that the bankers are unwilling to subscribe to the old theory – lending is bankers' dharma. Well, the unwillingness to lend is understandable since lending is at the core is subjective decision and this has made them easy prey to the exuberance of illadvised and semi- educated sleuths.
Big business knows the survival mantra. For them to pay idle wages is not a big deal as the House of Tatas has demonstrated. It is the small business that is

Need of the day across India is job creation. Not doles. Sadly, the Modinomics has no blue print for jobs. As yet. Making Pakodas and jilebis is and will continue to be a good occupation. Only as a part time. India today is craving for full time jobsby millions and millions.

facing the Corona music. On the one hand sales are down. And on the other hand, manufacturing was locked down for over a month. So they and their worker are face to face with existential dilemma. Only Government wage bill subsidy will prevent the collapse of the sector and puncture the pink slip syndrome overwhelming the workers.
The new buzz word today is stimulus. From the 15th Finance Commission to State Finance Ministers, and from Niti Ayog to Trade and Commerce chambers, the refrain is the same: India needs major stimulus.
They have been holding virtual consultations these days and their prescription is that government must act swiftly to contain the virus fall-out on the economy, which in essence means is call for big ticket reforms to take Indian liberalisation to the next level.
Essentially this is a refurbished demand for labour sector reforms, which inter alia is a clamour for hire and fire freedom.

Raghuram Rajan,Abhijit Banerjee and Amartya Sen Frankly it is not easy to accede to the demand which has been staring at the political executive for nearly two decades. Prime Minister Modi may be committed to neo-liberalism; he may possess the political will to act. But will he act? That is a million dollar question given the reality that he does not have the political space to act particularly in these pandemic days.
The corona lockdown has put an estimated seven million jobs on the line in the restaurant sector alone. Noted economists and Nobel laureates, Amartya Sen, Raghuram Rajan, and Abhijit Banerjee want India therefore to spend wisely, but don't skimp on the truly needy.

The corona lockdown has put an estimated seven million jobs on the line in the restaurant sector alone. Noted economists and Nobel laureates, Amartya Sen, Raghuram Rajan, and Abhijit Banerjee want India therefore to spend wisely, but don't skimp on the truly needy.

Their message: This distress cuts across the value chain — from suppliers and vendors to farmers.
West Bengal Finance Minister Amit Mitra, who was once the face of trade body, FICCI, wants the Centre to step out of Lakshmana Rekha, and announce big-bang stimulus. "A substantial stimulus is a must, and also possible, because India has headroom to borrow," he told Hindustan Times on April 24. Expectedly, he is unhappy with the Centre and finds it unresponsive to 'Didi's demands'.

Amit Mitra The Centre is not as responsive as it should have been in an ideal co-operative federalism and at a time when states are fighting against a pandemic, he was quoted as remarking. He was silent on how to go about issues of detail like rising unemployment, poverty and hunger. Also on how to address the labour crunch that is likely to hit India Inc's plan to reboot biz.
Because an estimated five crore migrant workers are believed to have rushed back to home towns in the wake of corona Janata curfew and lockdown.This reverse migration will hit procurement operations at mandis.
Need of the day across India is job creation. Not doles. Sadly, the Modinomics has no blue print for jobs. As yet. Making Pakodas and jilebis is and will continue to be a good occupation. Only as a part time. India today is craving for full time jobs by millions and millions.

India restricts Chinse FDI

Spurred by domestic politics and virus hit economy concerns in equal measure, the Modi government has put curbs on FDI flow from China without identifying the Bamboo capitalist by name. The move by the Department for Promotion of Industry and Internal Trade was tailor made at curbing "opportunistic takeovers of Indian companies" that are facing business downturn thanks to corona virus.
Primarily, the new restriction was aimed at checking China making backdoor entry into HDFC. Expectedly, Beijing was upset. State run tabloid, Global Times said "the one-size-fits-all restriction on Chinese investment will only backfire, particularly on India's manufacturing sector".
Saying that China's importance to India's manufacturing development is "incomparable in terms of both investment scale and technical transfer", the daily cautioned that the deterrence would work on both sides.
And held out a threat that if India shuns cooperation with China then "Chinese manufacturers too will avoid investing in India" because "India is not the only choice for the extension of China's industrial chain". Its last word: "India's new FDI restriction is a bitter pill to swallow for its own manufacturing".

Sonia ticks off

Sonia Gandhi Congress party's interim president Sonia Gandhi has been castigating the Modi government in these lockdown days. And has been shooting letters to the Prime Minister listing areas of action. "Govt acted on our Covid-19 suggestions in miserly way", she lamented in her April 23 letter. Sonia Gandhi also found fault with the government on another score. "Large heartedness and alacrity from the Central Government is conspicuous by its absence", she told a meeting of the CWC, the Congress party's highest policy body.uring".

Yashwant Sinha mantra: print more notes

Manmohan Singh Former Finance Minister Yashwant Sinha, a known Modi baiter, has an unsolicited money mantra to reboot to economy. Fielding the question "Where will the money come from", he wrote his prescription in The Indian Express (April 11, 2020). "Broadly speaking, it (money) will come partly through market borrowings and partly from the RBI". In 1994 Manmohan Singh as Finance Minister decreed that the government of India would not to borrow from the RBI but tap the money market. "Take leave from that very sound advice in these unprecedented times", and borrow from the RBI", he advises the Narendra Modi government.
This means printing of more currency notes with all its attendant problems including inflation. So his caveat: Government of India will have to take the steps necessary to tackle the after-effects to the extent possible. It must ensure that the supply chains work smoothly.

Limited reboot

From April 20, the government has allowed a limited reboot to economic activity in urban and rural areas in zones outside the containment belt while prescribing strict workplace norms in what is seen as a move to experiment with conditional reopening, according to the Union Home Ministry the nodal agency handling the Corona pandemic fall out. The States are given freedom to 'relax' lockdown to get the rural economy moving again. The big caveat is that everyone at the work place must adhere to adherence to social distancing norms including mandatory wearing of masks by all workers, regular sanitisation of common surfaces, and staggered work shifts with even limits on people attending a meeting or getting into a lift.

Dearness Allowance Freezed

As a first step towards mopping money for Corona relief effort, the Finance ministry on April 23 decided to freeze fresh instalments of dearness allowance (DA) for 50 lakh central government employees and 61 lakh pensioners due from January 1, 2020 till July 2021. This means availability of Rs. 37,530 crore to the exchequer in the current financial year and 2021-22. If the states also take similar recourse, it would mean mopping up a whopping Rs 1.20 lakh crore in the battle against Corona, and its fallout.

RBI governor's package

Turning to the status of banking operations since the nationwide lockdown was imposed by the Government of India from March 25, 2020, the RBI has taken a number of steps to ensure normal business functioning by the entire banking sector. As a result, the payment infrastructure is running seamlessly. Based on our continuing assessment of the macroeconomic situation and financial market conditions, we propose to take further to target liquidity provision to sectors and entities which are experiencing liquidity constraints and/or hindrances to market access. Long term repo operations (LTROs) to ensure adequate liquidity at the longer end of the yield curve, exemptions from the cash reserve ratio for the equivalent of incremental credit disbursed by banks as loans in certain select areas/segments and targeted LTROs or TLTROs fall in this class of sectorspecific measures. The funds availed by banks under TLTRO 2.0 should be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount availed going to small and mid-sized NBFCs and MFIs.
All India financial institutions (AIFIs) such as the National Bank for Agriculture and Rural Development (NABARD), the Small Industries Development Bank of India (SIDBI) and the National Housing Bank (NHB) play an important role in meeting the long-term funding requirements of agriculture and the rural sector, small industries, housing finance companies, NBFCs and MFIs. In view of the tightening of financial conditions in the wake of the COVID-19 pandemic, these institutions are facing difficulties in raising resources from the market.
Accordingly, it has been decided to provide special refinance facilities for a total amount of ₹50,000 crore to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs. This will comprise ₹25,000 crore to NABARD for refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions (MFIs); ₹15,000 crore to SIDBI for on-lending/refinancing; and ₹ 10,000 crore to NHB for supporting housing finance companies (HFCs). Advances under this facility will be charged at the RBI's policy repo rate at the time of availment.
The surplus liquidity in the banking system has risen significantly in the wake of government spending and the various liquidity enhancing measures undertaken by the RBI. On April 15, the amount absorbed under reverse repo operations was ₹6.9 lakh crore. In order to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy, it has been decided to reduce the fixed rate reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4.0 per cent to 3.75 per cent with immediate effect. The policy repo rate remains unchanged at 4.40 per cent, and the marginal standing facility rate and the Bank Rate remain unchanged at 4.65 per cent.
It has been decided that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period, i.e., there would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020. NBFCs, which are required to comply with Indian Accounting Standards (IndAS), may be guided by the guidelines duly approved by their boards and as per advisories of the Institute of Chartered Accountants of India (ICAI) in recognition of impairments. In other words, NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers.
18. At the same time, we are cognizant of the risk build-up in banks' balance sheets on account of firmlevel stress and delays in recoveries. With the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain higher provision of 10 per cent on all such accounts under the standstill, spread over two quarters, i.e., March, 2020 and June, 2020. These provisions can be adjusted later on against the provisioning requirements for actual slippages in such accounts.
Under RBI's prudential framework of resolution of stressed assets dated June 7, 2019, in the case of large accounts under default, Scheduled Commercial Banks, AIFIs, NBFC-ND-SIs and NBFC-D are currently required to hold an additional provision of 20 per cent if a resolution plan has not been implemented within 210 days from the date of such default. Recognizing the challenges to resolution of stressed assets in the current volatile environment, it has been decided that the period for resolution plan shall be extended by 90 days.
In terms of the extant guidelines for banks, the date for commencement for commercial operations (DCCO) in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters can be extended by an additional one year, over and above the one-year extension permitted in normal course, without treating the same as restructuring. It has now been decided to extend a similar treatment to loans given by NBFCs to commercial real estate. This will provide relief to NBFCs as well as the real estate sector.
The RBI will monitor the evolving situation continuously and use all its instruments to address the daunting challenges posed by the pandemic.

(Excerpts from RBI Governor's statement to the media on April 17, 2020)