Prime Minister Narendra Modi’s speech to the nation Thursday evening on the coronavirus threat was impressive and in many ways reassuring. But the economic implications of this pandemic for India’s already faltering growth deserved more than what he announced.
COVID-19 has directly affected nearly 2.5 lakh individuals globally, including 206 Indian citizens. While I have extended my wholehearted support to the Modi government in our initiatives to tackle the current situation, it’s important that the government also pay attention to the economy, especially in light of our bearish financial market, if it seeks to comprehensively address the present reality.
The majority of the operations of small and medium enterprises have been severely affected, with some coming to a halt in this environment. This affects all those working in such companies, as well as entrepreneurs, the self-employed and others. Not only have their incomes reduced but also their ability to address recurring costs such as monthly instalments on existing loans.
The Modi government should therefore consider a variety of financial steps that could help them deal with the crisis, such as offering a moratorium on existing loans (within a specified threshold and for a specified period of time), an extension of the deadline to file tax returns, as well as steps to ensure that no workers are dismissed during this period of economic inactivity.
Government policies have handicapped India’s economy in its efforts to cope with the COVID-19 crisis. We have still not recovered from the ill-effects of demonetisation and the botched and hasty rollout of the Goods and Services Tax (GST). The fall in oil prices globally involved no transfer of benefits to the Indian consumer because the Modi government hiked excise duties on petrol and diesel. The pandemic has hit the economy at a time when growth has slowed to the lowest in a decade, foreign investments are shrinking, and a consumption recovery is sputtering.
Twin blow — aviation and tourism
The most pronounced casualty of the restrictions imposed to contain the spread of COVID-19 has been the aviation sector. Reports say that three-quarters of all international bookings and a fifth of all domestic bookings have been cancelled in recent days. Things have become much worse this week with travel banned from a growing list of countries, and now all international flights halted for next week.
In turn, the tourism industry has taken a devastating hit as travel restrictions everywhere and COVID-19 fears take their toll. Tourism is effectively at a standstill and even domestic tourism has dried up. Operators are devastated because many have been running their businesses through loans from banks and investors. The Confederation of Kerala Tourism Industry has written to PM Modi and Finance Minister Nirmala Sitharaman seeking a moratorium on the repayment of loans and interest for at least one year if they are to have any chance of recovery from such an extraordinary blow. Similar needs may well exist throughout the tourist areas of the country.
Any business dependent on imports or exports is severely affected, notably exports to the European Union, which is India’s largest exports destination. India will also be impacted by disruptions in the supply chain from China. Several industries, including automobiles, chemicals and textiles, are reported likely to be affected.
Of course, when businesses suffer, the government collects less corporate tax as well, leaving itself less well-equipped to find the resources to bail businesses out. But the nettle must be grasped. If the Indian economy is not to go under altogether, serious relief measures are needed to buffer the shock being felt by individuals and companies throughout the country.
Other countries have acted
We have already seen such measures being implemented in nations around the world. To minimise the economic impact of COVID-19 on vulnerable families, countries such as France, Japan and South Korea are giving wage subsidies. China is helping smaller firms by reducing the tax burden and ensuring unemployment benefits are paid on time.
The US House of Representatives on Saturday passed a bill expanding paid medical leaves and food assistance programmes as well as unemployment benefits to the affected. The US’ $1 trillion bailout includes weighing various plans to send cheques worth between $1,000 and $2,000 to most Americans.
Britain’s government has proposed nearly $400 billion in loans and $35 billion in direct state assistance to individuals and firms in need. France has announced $50 billion in spending, plus $384 billion in loan guarantees, as part of a new emergency budget. The government in the Netherlands will cover 90 per cent of salaries lost because of reduction in work hours. Denmark will shoulder 75 per cent of wages to prevent affected companies from laying off their personnel.
India’s turn now
The Indian government must also act. In India’s case, because the virus has not reached the pervasive stage it has elsewhere, we have a unique opportunity to implement this before the situation escalates further. The Modi government should consider urgent relief to the SMEs and MSMEs in the form of soft loans to meet their operational expenses. This is especially important for those enduring delays in payments from overseas.
The Modi government should convene a meeting of representatives from the aviation and tourism industries to consider the impact of the coronavirus outbreak on their respective sectors and to identify measures that can be undertaken to alleviate their distress.
We should also urgently incentivise the alcohol, perfume and garment industries to repurpose their facilities to produce much needed disinfectant, medical masks and gloves, in an effort to meet the nation’s medical requirements. The fact is that many plants are idle and in the current atmosphere, the demand for luxury goods and discretionary purchases has plummeted anyway.
Special focus on poorer Indians
Even as we help small and medium business and those employed by them, we must also pay attention to participants in the informal economy, fellow citizens who do not have the capacity to stay at home since it will affect their daily income – quite literally their family’s daily bread. For these poorer Indians, it is vital that the Modi government looks into a range of interventions such as offering a temporary aid package that can help them tide over the current crisis. Irrespective of what protocols we implement, we cannot allow these to further affect the poor and marginalised within our society. They need and deserve the utmost support from their government.
Given that the recent gains from low international crude oil prices have been absorbed by the exchequer rather than passed on to the people of India, it is only fitting that some of these resources are utilised to bring relief to the financial burden of the aam aadmi in the time of a crisis of this magnitude.
If we do all this, with the wealth of capable experts directing India’s initiatives as well as the steadfast resoluteness that Indians have historically displayed in challenging times, together, as a nation, we can and shall overcome even the current crisis.
The author is a Member of Parliament for Thiruvananthapuram and former MoS for External Affairs and HRD. He served the UN as an administrator and peacekeeper for three decades. He studied History at St. Stephen’s College, Delhi University and International Relations at Tufts University. Tharoor has authored 19 books, both fiction and non-fiction. Follow him on Twitter @ShashiTharoor. Views are personal.
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