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Editorial: Bitter pills for a better future
The RBI’s latest move to cut 40 basis points (bps) in the repo and reverse repo rates and offer a 3-month loan moratorium, though a temporary relief to improve liquidity, may herald good news for the majority of the country.
While experts are still debating the net impact of the pandemic on the Indian economy, the RBI’s measure to ensure circulation of cash, especially within the Middle Income Group (MIG) and Lower Income Group (LIG), could be termed as a minor reprieve.
The ongoing slowdown is not a recession per se, but the fallout of a clear and present health emergency that needs to be pinned down. The immediate threat is the liquidity crunch, whose brunt is borne by all sections, has led to the closure of lakhs of production units, and affected the livelihood of millions of workers.
It may be argued that the Rs 20 lakh crore stimulus package, touted to be a massive 10% of the GDP, is a progressive measure initiated by the Centre. But there has been no major initiative to ensure cash flow into the hands of the poor and LIG families (grassroots workers) to meet their daily needs. The benefits to be accrued from the stimulus announced by the PM might be tangible only after a few months. Furthermore, the package only implies credit guarantees to MSMEs (not loans). With pay cuts and layoffs set to be among the top and immediate austerity measures adopted by industries, liquidity will remain curtailed in the local and retail markets.
Those at the helm of policy-making seem to have dodged a ‘long term’ opportunity to better the lives of workers and the poor. The Centre’s announcement, offering two months of free ration to eight crore migrants; hiking the minimum wage for workers from Rs 182 to Rs 202 per day; and increasing the allocation for MGNREGS by Rs 40,000 cr, over and above the Rs 61,000 cr budgeted earlier, might work as a painkiller, but it’s not a permanent cure. These measures can just about ensure basic survival, they can’t maintain a standard of life.
What the Centre also ignored, almost in its entirety is the transfer of funds to state governments. If the government fails to address the current liquidity crisis, it could snowball into a serious problem in a few months. Many experts have asked RBI to print notes and directly offer them to the Centre to meet its fiscal deficit. But stakeholders fear the flip-side of that would entail spike in inflation, the exit of foreign investment, downgraded ratings, and a government with an overspending problem. Former Finance Minister P Chidambaram had slammed the rate cut and prodded the RBI governor Shaktikanta Das to rely instead on fiscal measures.
Former RBI Governor Raghuram Rajan, had advocated a measured approach to dealing with this crisis. His plan of action involves the Government issuing bonds worth Rs 1 lakh cr and letting RBI subscribe to it. This leads to money being routed via commercial banks and the government being able to finance projects, as well as pay salaries. While he did not pin his hopes on monetisation, he did categorically mention that India should worry about getting the fiscal deficit and its debt back in shape over the medium term.
A significant increase in taxation, revoking subsidies for the economically privileged, and maybe, the introduction of a corona cess could offer some respite to those at the bottom of the pyramid. Many of India’s affluent and upwardly mobile might have to bite the bullet, taking comfort in the fact that they have a higher obligation towards ensuring the greater public good.