New Delhi: Economic activity has started picking up and factories are operating at around 20 to 30 per cent of their capacity, a top finance ministry source said Friday, adding the government’s priority is to kickstart economic activity.
The assessment is based on feedback from various industry bodies, the source said, adding that the labour ministry is in touch with states to look for ways to bring back the migrant labourers who have left the cities for their villages and hometowns.
The government is conscious of the fact that the return of labour to their villages will impact economic activity given their contribution to both the organised and unorganised sector, the source said.
With many states easing lockdown curbs, economic activity has started resuming but lack of labour remains a major hindrance. Lakhs of migrant labourers left the big urban centres of India as the lockdown, which has continued with periodic relaxations since 25 March, left them without jobs and earning opportunities.
The finance ministry source acknowledged that companies are facing labour shortages, but added that they are recasting their business models to employ local labour, probably at higher costs and with additional incentives like pick-up and drop facility.
On the govt agenda
The impact of the lockdown has been most severe on the manufacturing and services sector, with large-scale job and livelihood losses.
Economists have forecast that India will face a sharp recession in 2020-21 with the worst contraction expected in the current quarter due to the two-month lockdown.
Discussing the steps being taken by the government to aid recovery, the finance ministry source said the GST Council is slated to meet next month amid a sharp fall in GST revenues. However, any decision on increasing tax rates, the source added, has to be taken keeping in mind the fact that demand revival is the primary focus of the government.
“Demand has to be induced for all products — essential and non-essential. So, the fact that economic activity has to increase across all sectors has to be kept in mind,” the source added.
The government is also hoping that, with the lockdown curbs easing, businesses will seek disbursals of the loans sanctioned by banks under emergency Covid-19 funding lines announced by the government in April.
The source added that the government has kept an open mind regarding further support measures for the economy, and will act when required. However, monetisation of deficit is not on the government’s agenda for now.
According to the source, the Financial Stability and Development Council held discussions on the constitution of a ‘bad bank’ at a meeting Thursday, but no decision has been taken as of now.
The proposal of a ‘bad bank’ has been endorsed by banks over the years in order to pool together all bad debts into this institution. But so far, the government has not acted on any such proposal.