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)