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  • How a dollar swap line with US Fed can help in uncertain times?

    India is working with the US to secure a dollar swap line that would help in better management of its external account and provide an extra cushion in the event of an abrupt outflow of funds.

    What are Currency Swaps?

    • A currency swap, also known as a cross-currency swap, is an off-balance sheet transaction in which two parties exchange principal and interest in different currencies.
    • The purpose of a currency swap is to lower exposure to exchange rate risk or reduce the cost of borrowing a foreign currency.

    Why do we need dollars?

    • According to RBI data, 63.7% of India’s foreign currency assets — or $256.17 billion — are held in overseas securities, mainly in the US treasury.
    • While FPIs investors looking for safer investments, the current global uncertainty over COVID outbreak have led to a shortfall in Indian stock markets.
    • This has pulled down India’s foreign exchange reserves.
    • This means that the government and the RBI cannot lower their guard on the management of the economy and the external account.

    How does a swap facility work?

    • In a swap arrangement, the US Fed provides dollars to a foreign central bank, which, at the same time, provides the equivalent funds in its currency to the Fed, based on the market exchange rate at the time of the transaction.
    • The parties agree to swap back these quantities of their two currencies at a specified date in the future, which could be the next day or even three months later, using the same exchange rate as in the first transaction.
    • These swap operations carry no exchange rate or other market risks, as transaction terms are set in advance.

    Benefits of currency swap

    • The absence of an exchange rate risk is the major benefit of such a facility.
    • This facility provides India with the flexibility to use these reserves at any time in order to maintain an appropriate level of balance of payments or short-term liquidity.
    • currency swaps between governments also have supplementary objectives like promotion of bilateral trade, maintaining the value of foreign exchange reserves with the central bank and ensuring financial stability (protecting the health of the banking system).

    Recent examples

    • India already has a $75 billion bilateral currency swap line with Japan, which has the second-highest dollar reserves after China.
    • The RBI also offers similar swap lines to central banks in the SAARC region within a total corpus of $2 billion.

    Note: Relate all other terminologies related to USD-INR convertiblity viz. Current Account, BoP etc.

  • [pib] Operation Lifeline UDAN

    To ensure a steady supply of essentials, even in the most remote locations, the Union Civil Aviation Ministry launched ‘Lifeline Udan’.

    Don’t get confused or correlate this with Ude Desh ka Aam Nagrik (UDAN) Scheme. The name clearly indicates that it is an HADR like operation. Whats HADR? Humanitarian Assistance and Disaster Relief

    Op. Lifeline Udan

    • Under this operation, flights are being operated to transport essential medical cargo to remote parts of the country amid the lockdown to support India’s fight against Covid-19.
    • The flights have been operated by Air India, Alliance Air, Indian Air Force, Pawan Hans and private carriers.
    • The cargo compulsorily supplies goods such as regents, enzymes, medical equipment, testing kits and PPE, masks, gloves and other essential items as applicable by the State and UT Governments.
    • Air India is shouldered to operate dedicated scheduled cargo flights to other countries for transfer of critical medical supplies, as per the requirement.

  • A plan for the aftermath

    Context

    Everyone is agreed that the whole world is hurtling towards an unprecedented economic recession. India, already facing a massive slowdown, is going to get hurt perhaps more than the others, because our economic immune system is already weak.

    Three things that we must do in the present situation

    • The first is containing the spread of the virus.
    • Apart from the manpower, medicines, protective equipment for frontline workers and other methods, it will need massive resources to tackle it.
    • Second, the poor are already suffering in more ways than one, including the daily wage earners. They will have to be taken care of, again needing massive resources.
    • Third, economic activity will have to be revived as soon as conditions return to normal or near-normal, for which businesses will have to be helped, again needing massive resources; both in terms of revenue foregone and actual cash outgo.
    • The question, therefore, on everyone’s mind is how much money will be needed for all this and where will it come from?
    • What the government and the RBI have done so far is clearly awfully inadequate. Other countries have done much more. India can be no exception.

    Where will the government will get resources?

    • Partly from market and partly form RBI: Broadly speaking, resources will come partly through market borrowings and partly from the RBI.
    • Manmohan Singh had decided in 1994 that in future the government of India would not monetise its deficit; in other words, would not borrow from the RBI but go to the money market and borrow from there.
    • Borrow from the RBI: In these unprecedented times, we may take leave from that very sound principle, which all governments have followed religiously since then, and borrow from the RBI.
    • What does it mean? This means printing of more currency notes with all its attendant problems including inflation.
    • 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.

    How will the money be spent?

    • The Important role of states: The states will have to play a very important role in this, as much of the work will have to be done by them.
    • Responsibility of finance commission: Since the finance commission continues to be in existence and has a clear idea of the state finances, it should be immediately tasked with the responsibility of discussing this matter with the state governments and making its recommendations available within a period of one month.
    • The task force under the finance minister could work out the needs of businesses and the government of India both in the short as well as the medium term.
    • Spending money properly and efficiently: It should not be wasted and each rupee spent creates its own multiplier effect.
    • Our system leaves much to be desired. And the moment it is known that funding is not a constraint, the system can go berserk.
    • We must guard against that and ensure that rules are in place, specially at the field level to ensure the proper use of resources.

    Role of banks, financial institutions and MGNREGA

    • The banks and other financial institutions will have to be provided with resources to help the private sector, especially the agricultural and MSME sectors.
    • In the rural areas, we must ensure that durable assets are created out of the funds made available.
    • The rules governing the MGNREGA scheme should be tweaked to the extent necessary in order to ensure that more material than labour is used wherever necessary.

    Conclusion

    India should and can come out of the present crisis with as little damage as possible if we tackle it together. We cannot control what happens in other countries, but we can surely learn from them and adopt their best practices. We must also play our role in defining the new global order because the world is more intertwined now than ever before.

  • Know all about the National Board for Wildlife

    The National Board for Wildlife (NBWL) hasn’t met since 2014. Policy decisions and clearances have, meanwhile, come from a standing committee to the dismay of experts.

    This newscard is all about the factoids on National Board for Wildlife. The fact that they haven’t met since 2014 makes it interesting for UPSC to quiz you on its details.

    About National Board for Wildlife

    • The NBWL is constituted by the Central Government under Section 5 A of the Wildlife (Protection) Act, 1972 (WLPA).
    • It serves as an apex body to review all wildlife-related matters and approve projects in and around national parks and sanctuaries.
    • The board is advisory in nature and advises the Central Government on framing policies and measures for conservation of wildlife in the country.

    Composition

    • It is chaired by India’s Prime Minister and its vice-chairman is Minister of Environment.
    • The NBWL has 47 members including the chairperson.
    • Among these, 19 members are ex-officio members.
    • Every new government constitutes a new board, based on the provisions of the WLPA, with the new PM as the chair.

    Functioning

    • The primary function of the NBWL is to promote the conservation and development of wildlife and forests.
    • It has the power to review all wildlife-related matters and approve projects in and around national parks and sanctuaries.
    • No alternation of boundaries in national parks and wildlife sanctuaries can be done without the approval of the NBWL.

    Working through a Standing Committee

    • The National Board may, at its discretion, constitute a Standing Committee.
    • The Committee shall consist of the MoEFCC in charge as Vice-Chairperson, Member Secretary and not more than ten members to be nominated by the Vice-Chairperson from amongst the members of the National Board.
    • The WLPA mandates that without the approval/recommendation of the NBWL, construction of tourist lodges, alteration of the boundaries of PAs, destruction or diversion of wildlife habitat and de-notification of Tiger Reserves, cannot be done.

    Seeking clearances

    • Several proposals seeking statutory approvals for such projects come up before the Standing Committee.
    • Every proposal requires to be submitted by the State Government in the approved format with complete details (maps, field assessments, alternatives explored…).
    • It must also contain the clear opinion of the officer in charge of a PA, the Chief Wildlife Warden and the State Government in consultation with the State Board for Wildlife.
    • The Standing Committee will then have to consider such proposals in accordance with the provisions of the WLPA.

    Back2Basics: Wildlife (Protection) Act, 1972

    • WPA provides for the protection of the country’s wild animals, birds and plant species, in order to ensure environmental and ecological security.
    • It provides for the protection of a listed species of animals, birds and plants, and also for the establishment of a network of ecologically-important protected areas in the country.
    • It provides for various types of protected areas such as Wildlife Sanctuaries, National Parks etc.
    • There are six schedules provided in the WPA for protection of wildlife species which can be concisely summarized as under:
    Schedule I: These species need rigorous protection and therefore, the harshest penalties for violation of the law are for species under this Schedule.
    Schedule II: Animals under this list are accorded high protection. They cannot be hunted except under threat to human life.
    Schedule III & IV: This list is for species that are not endangered. This includes protected species but the penalty for any violation is less compared to the first two schedules.
    Schedule V: This schedule contains animals which can be hunted.
    Schedule VI: This list contains plants that are forbidden from cultivation.

     

  • Financing the pandemic rescue package

    Context

    The priority for India is to ensure that it overcomes the COVID-19 pandemic and kick-starts GDP growth.

    Financing strategy for the 1.7 lakh crores package

    • Rather than fix the weaknesses in the macroeconomy: a high fiscal deficit of 7.49% and government indebtedness that was 69% of GDP in 2019, the government wants to overcome the pandemic.
    • When COVID-19 cases began to increase, the Government of India (GoI) swung into action by announcing a 21-day national lockdown and a ₹1.7-lakh crore (approximately $22.59 billion) rescue package.
    • Financing strategy: Available in the state disaster relief fund is ₹60,000 crore, comprising ₹30,000 crore of the outstanding balance and the Central government’s allocation of a similar amount for FY2021.
    • Hence, the GoI needs to raise an additional ₹1.1-lakh crore,e., 65% of the rescue package outlay.
    • Its financing strategy should be to raise long-term funds at cost-effective rates, with flexible repayment terms that allow it to take tactical advantage of market movements.
    • Following are some of the options that the government can explore to raise the required amount.

    1. GDP-linked bonds

    • The GoI may issue listed, Indian rupee-denominated, 25-year GDP-linked bonds that are callable from, say, the fifth year.
    • What GDP-linked means? The coupon (interest) on a GDP-linked bond is correlated to the GDP growth rate and is subject to a cap.
    • The issuer, the GoI, is liable to pay a lower coupon during years of slower growth and vice-versa.
    • The callable feature from the fifth year till maturity allows the GoI to effect partial repayments during high growth years and when it earns non-recurring revenues such as proceeds from disinvestment of public sector enterprises (PSEs).
    • The listing of bonds provides investors with an exit option.
    • Examples from the world: Costa Rica, Bulgaria and Bosnia-Herzegovina issued the first pure GDP-linked bonds in the 1990s.
    • Argentina and Greece issued warrant-like instruments similar to GDP-linked bonds in 2005 and 2012 respectively. India could learn from their experience.
    • Timely GDP data is a prerequisite: Publishing reliable and timely GDP data is a prerequisite for the successful issue of GDP-linked bonds, which the GoI may use to part-finance the COVID-19 rescue package and to diversify its borrowing sources.

    2. Streamlining PSEs

    • The 15 largest non-financial central PSEs (CPSEs) in the S&P BSE CPSE index contributed approximately 75% of the GoI’s ₹48,256.41 crore dividend income from PSEs in FY2020.
    • The Union Budget projected PSE dividends to increase by 25% to ₹65,746.96 crore in FY2021.
    • This milestone is unlikely to be achieved in the current environment.
    • The 15 CPSEs have accumulated sizeable non-core assets including financial investments, loans, cash and bank deposits in excess of their operating requirements, and real estate.
    • The return on these assets (excluding real estate) is around 200 basis points lower than the returns on their core businesses.
    • These CPSEs owe the government ₹25,904 crore as of end-March 2019.
    • These non-core assets must be monetised to repay statutory dues and upstream dividends to GoI.
    • Formation of HOLDCO: While loans and excess cash and bank deposits may be monetised within three months, streamlining investments and selling real estate is a time-consuming process.
    • It is imperative for the GoI to form a PSE and public sector bank holding company (‘Holdco’) along the lines of Singapore’s Temasek Holdings and Malaysia’s Khazanah Nasional Berhad.
    • The Holdco will enable PSEs to monetise their non-core assets at remunerative prices, maximise their enterprise value and focus on their core businesses.
    • The ₹30,168 crore loans that CPSEs have extended to employees, vendors and associates may be securitised or refinanced, with CPSEs guaranteeing loans extended to weak counterparties.
    • Excess liquidity with PSEs: It is essential that businesses maintain liquidity, especially during a downturn. However, the outstanding cash and bank deposits of the 15 CPSEs (₹64,253 crore) is in excess of their operating requirements.
    • CPSEs must determine the cash they require to meet, say, six months of operating expenses and use the excess cash to repay statutory dues and upstream dividends to the GoI.
    • Banks must extend to CPSEs committed lines of credit that the latter may draw down during exigencies.
    • Financial investments of PSEs be transferred to HOLDCO: The 15 CPSEs have accumulated ₹93,562 crore financial investments comprising listed and unlisted debt, equity and mutual fund units.
    • These exclude investments in associates and joint ventures.
    • The CPSEs ought to transfer these investments to Holdco, which can manage the portfolio and transfer the returns to the original investors.
    • Real estate holdings of PSEs: One important non-core asset, whose value is likely to exceed the combined value of other non-core assets, is the real estate holdings of PSEs.
    • In September 2018, the GoI identified properties of nine PSEs (Air India, Pawan Hans, Hindustan Fluorocarbons, Hindustan Newsprint, Bharat Pumps & Compressors, Scooters India, Bridge and Roof Co, Hindustan Prefab, and Projects & Development India) to be divested.
    • The GoI must mandate all PSEs and government departments to transfer their non-core properties to Holdco, which can opportunistically sell these properties and transfer the proceeds to the owners.

    Refrain from asking RBI to pay more dividend

    • The Reserve Bank of India (RBI) has allocated ₹1 lakh crore to carry out long-term repo operations in tranches and has reduced the repo rates by 75 basis points to 4.4% to help banks augment their liquidity in the wake of the pandemic.
    • Recognising the RBI’s liquidity requirements, the GoI must refrain from asking the RBI to pay more dividends that it can viably pay.
    • During the five years ending on June 30, 2019, the RBI paid the GoI 100% of its net disposable income, with its FY2019 dividends more than trebling to ₹1.76 lakh crore from ₹50,000 crore in FY2018.
    • The Bimal Jalan panel constituted in 2019 to review the RBI’s economic capital framework opined that the RBI may pay interim dividends only under exceptional circumstances and that unrealised gains in the valuation of RBI’s assets ought to be used as risk buffers against market risks and may not be paid as dividends.

    Conclusion

    The Bimal Jalan panel recommendation must be adhered to in letter and spirit. The GoI may finance the COVID-19 rescue package by issuing GDP-linked bonds, tapping PSEs’ excess liquidity and monetising non-core assets.

  • Is e-NAM portal capable of supporting farmers?

    Context

    • The union government has launched new features in electronic agriculture market platform (e-NAM), to decongest wholesale markets amid coronavirus threat.
    • Whether these features would solve the problems of farmers is a matter of question.

    What is e-NAM?

    • eNAM platform is an online trading platform for agricultural commodities in India.
    • It was launched on April 14, 2016 as a pan-India electronic trade portal linking agricultural produce market committees (APMCs) across all states.
    • It facilitates farmers, traders and buyers with online trading in commodities.
    • It helps in better price discovery and provides facilities for smooth marketing of their produce.

    Trading on e-NAM

    • Over 90 commodities including staple food grains, vegetables and fruits are currently listed in its list of commodities available for trade.
    • The farmer needs to upload details of his produce and a photo of the harvest on the platform.
    • It actually provided for evaluation and grading of produce.

    Why farmers don’t prefer e-NAM?

    • Lack of internet connectivity is another issue impeding progress.
    • Farmers feel more comfortable with physical trading rather than going online as they face issues with transportation for their produce.
    • Only 8.42 per cent of the total mandis are connected through the e-NAM platform.

    Issues with grading

    • There are no scientific sorting/grading facilities or quality testing machines.
    • The grading process makes farmers bring a sample of their produce that is evaluated and graded by agricultural assessors.
    • A report on the sample can be accessed by any buyer in any state before making the purchase, once graded by assessors.
    • The government realized the complexities allowed for gradation from a warehouse nearest to them and farmers need not commute to a mandi from remote areas.
    • It is, however, still not clear whether produce can be graded at the warehouse or not.

     

  • Third mass bleaching of Great Barrier Reef

    A survey has found record sea temperatures had caused the third mass bleaching of the 2,300-kilometre Great Barrier Reef system in just five years.

    What is Coral Bleaching?

    • When corals face stress by changes in conditions such as temperature, light, or nutrients, they expel the symbiotic algae zooxanthellae living in their tissues, causing them to turn completely white.
    • This phenomenon is called coral bleaching.
    • The pale white colour is of the translucent tissues of calcium carbonate which are visible due to the loss of pigment-producing zooxanthellae.

    About Great Barrier Reef

    • The Great Barrier Reef is the world’s largest coral reef system composed of over 2,900 individual reefs and 900 islands.
    • It is stretched for over 2,300 kilometres over an area of approximately 344,400 square kilometres.
    • The reef is located in the Coral Sea, off the coast of Queensland, Australia.

    Importance of Corals

    Coral reefs are some of the most diverse and valuable ecosystems on Earth.

    • They support more species per unit area than any other marine environment, including about 4,000 species of fish, 800 species of hard corals and hundreds of other species.
    • This biodiversity is considered key to finding new medicines for the 21st century. Many drugs are now being developed from coral reef animals and plants as possible cures for cancer, arthritis, human bacterial infections, viruses, and other diseases.
    • Healthy coral reefs support commercial and subsistence fisheries as well as jobs and businesses through tourism and recreation.
    • Local economies receive billions of dollars from visitors to reefs through diving tours, recreational fishing trips, hotels, restaurants, and other businesses based near reef ecosystems.
    • Coral reef structures also buffer shorelines against 97 percent of the energy from waves, storms, and floods, helping to prevent loss of life, property damage, and erosion.
    • When reefs are damaged or destroyed, the absence of this natural barrier can increase the damage to coastal communities from normal wave action and violent storms.

    Back2Basics

    Coral Reefs

    • Coral reefs are built by and made up of thousands of tiny animals—coral “polyps”—that are related to anemones and jellyfish.
    • Polyps are shallow water organisms which have a soft body covered by a calcareous skeleton. The polyps extract calcium salts from sea water to form these hard skeletons.
    • The polyps live in colonies fastened to the rocky sea floor.
    • The tubular skeletons grow upwards and outwards as a cemented calcareous rocky mass, collectively called corals.
    • When the coral polyps die, they shed their skeleton on which new polyps grow.
    • The cycle is repeated for over millions of years leading to accumulation of layers of corals shallow rock created by these depositions is called reef.

  • [pib] Biofortified Carrot ‘Madhuban Gajar’

     

    Madhuban Gajar

    • It is a biofortified carrot variety with high β-carotene and iron content developed by Shri Vallabhhai Vasrambhai Marvaniya, a farmer scientist from Junagadh district, Gujarat.
    • The variety is being cultivated in more than 1000 hectares of land in Gujarat, Maharashtra, Rajasthan, West Bengal, Uttar Pradesh during the last three years.
    • It is a highly nutritious carrot variety developed through the selection method with higher β-carotene content (277.75 mg/kg) and iron content (276.7 mg/kg) dry basis.
    • It is used for various value-added products like carrot chips, juices, and pickles.
    • This carrot variety possesses a significantly higher root yield (74.2 t/ha) and plant biomass (275 gm per plant) as compared to check variety.

  • A niggardliness that is economically unwarranted

    Context

    The Centre can afford to step up its COVID-19 assistance to a higher scale; fiscal deficit is no worry.

    Comparison with the US

    • Unemployment benefit in the US: In the United States, for instance, where the lockdown has raised the number of persons filing unemployment claims from 2.8 lakh to 6.6 million in a matter of days, those affected can fall back on unemployment benefit.
    • Comparison of packages: The US government has approved a package of ameliorative steps costing roughly 10% of that country’s GDP to cope with the crisis.
    • In India by contrast, the Finance Minister’s package comes to less than 1% of its GDP; and much of it is just a repackaging of already existing schemes.
    • New expenditure comes to just a little over half of the ₹1.7-lakh crore earmarked for the package.
    • Migrant workers are not the beneficiary: Besides, none of the steps will help the migrant workers; not even the larger foodgrain ration which in principle could, because most of them would have ration cards back home rather than in the places where they stay.

    What can be done?

    Consider the cash transfer

    • Many economists and civil society activists had suggested a cash transfer of ₹7,000 per month for a two-month period to the bottom 80% of households to tide over the crisis, in addition to enhanced rations of foodgrains and the inclusion of certain other essential commodities within the ration basket.
    • The cost of their proposed cash transfers alone would come to ₹3.66-lakh crore, which is more than 10 times the cash transfers provided in the Finance Minister’s package.
    • Providing assistance on the scale proposed by civil society organisations is necessary; it will no doubt pose logistical problems, but not financial problems.
    • Two possible effects of cash transfer: Even if all of it is financed through a fiscal deficit for the time being, the economic implications of such an enlarged deficit would not be forbidding.
    • These implications can manifest themselves in two ways: one is through inflation, and the other by precipitating a balance of payments problem. Let us consider each of these.

       Effect of cash transfer on inflation

    • As long as supplies of essential commodities are plentiful and these are made available through the Public Distribution System to the vast majority of the people so that they are insulated against the effects of inflation, any inflation per se should not be a matter of great concern. This is the case in India at present.
    • Foodgrain stocks with the FCI: The supply of the most essential of goods, food grains, is plentiful. Currently, there are 58 million tonnes of foodgrain stocks with the government, of which no more than about 21 million tonnes are required as buffer-cum-operational stocks.
    • This leaves a surplus of 37 million tonnes which can be used for distribution as enhanced ration, or for providing a cushion against inflation.
    • The rabi crop is supposed to be good; as long as it is safely harvested, this would further boost the government’s food stocks.
    • Rise in demand of other commodities: Likewise, the supplies of other essential commodities which consist of manufactured goods and where output has been demand-constrained all along will get boosted in response to higher demand; and in special cases, imports may have to be resorted to.
    • There is in short no reason to think that inflation of a worrisome magnitude will follow if the fiscal deficit is increased.
    • What about the multiplier effect? There is an additional factor here. The increase in total demand caused by an initial increase in demand, which is financed by a fiscal deficit, is a multiple of the latter.
    • Now in a situation like the present, when even if the lockdown is lifted social distancing and restrictions on social activities will continue, the value of the multiplier will be lower than usual.
    • People, in short, would hold on to purchasing power to a much greater extent than usual because of the continuing restrictions on demand, which would act as an automatic anti-inflationary factor.
    • Of course, there will be shortages of some less essential commodities and also hoarding on account of such shortages. But since these shortages will be expected to be temporary, a result of the pandemic unlikely to last long, there will be a damper on hoarding.

    Effect of cash transfer on deficit

    • The price rise of non-rationed commodities: If inflationary expectations are strong and persistent, then the prices of non-rationed commodities may rise sharply for speculative reasons.
    • How the government can prevent the price rise? But the government can prevent such expectations, by adopting measures such as bringing down petro-product prices, taking advantage of the collapse of world oil prices.
    • A larger fiscal deficit, therefore, need not cause disquiet on account of inflation.
    • Balance of payment issue: On the balance of payments front, the worry associated with a larger fiscal deficit is financial flight caused by frightened investors.
    • Some financial flight is already happening, with the rupee taking a fall.
    • Rush to dollar: This flight is not because of our fiscal deficit but because, whenever there is panic in financial markets, the tendency is to rush to dollars, even though the cause of the panic may lie in the United States itself.
    • Using foreign exchange reserves: India has close to half a trillion dollars of foreign exchange reserves. These can be used, up to a point, to check the flight from the rupee to the dollar.
    • Restriction on capital outflow: If the flight nonetheless persists, then India will have a legitimate reason for putting restrictions on capital outflows in the context of the pandemic.

    Way forward

    • The Centre must not worry about its fiscal deficit; and since the State governments will bear a substantial expenditure burden on account of the pandemic.
    • The Centre must make more resources available to the states.
    • The centre should raise their borrowing limits, perhaps double their current limits as a general rule, apart from negotiating the magnitude of fiscal transfers it should make towards them.

    Conclusion

    If the hardships of the people are not ameliorated through larger government expenditure, because of the fear that the larger fiscal deficit required for it would frighten finance into fleeing, then the privileging of finance over people would have reached its acme.

     

  • Restarting the economy after lockdown

      (This newscard is the excerpt from an article published in the TOI, authored by former RBI governor Raghuram Rajan. It discusses a series of reformative measures to boost our economy once the lockdown restrictions are eased.)

    Context

    • Economically speaking, India is faced today with perhaps its greatest emergency since Independence.
    • The global financial crisis in 2008-09 was a massive demand shock but our financial system was largely sound, and our government finances were healthy.
    • None of this is true today as we fight the coronavirus pandemic.
    • With the right resolve and priorities, and drawing on India’s many sources of strength, it can beat this virus back and even set the stage for a much more hopeful tomorrow.

    To begin with: 21 day Lockdown

    • The immediate priority, of course, is to suppress the spread of the pandemic through widespread testing, rigorous quarantines, and social distancing.
    • The 21-day lockdown is a first step, which buys India time to improve its preparedness.
    • The government is drawing on our courageous medical personnel and looking to all possible resources – public, private, defence, retired – for the fight, but it has to ramp up the pace manifold.
    • It will have to test significantly more to reduce the fog of uncertainty on where the hotspots are, and it will have to keep some personnel and resources mobile so that they can be rushed to areas where shortages are acute.

    Restarting with caution

    • The 21 day lockdown is about a week ahead to get lifted. It is hard to lockdown the country entirely for much longer periods, so we should also be thinking of how we can restart certain activities.
    • Restarting requires better data on infection levels, as well as measures to protect those returning to work.
    • Healthy youth, lodged with appropriate distancing in hostels at the workplace, maybe ideal workers for restarting.

    Pacing up manufacturing

    • Since manufacturers need to activate their entire supply chain to produce, they should be encouraged to plan on how the entire chain will reopen.
    • The administrative structure to approve these plans and facilitate movement for those approved should be effective and quick – it needs to be thought through now.

    Most crucial: Ensuring workforce sustenance

    • In the meantime, policymakers need to ensure that the poor and non-salaried lower middle class who are prevented from working for longer periods can survive.
    • Direct transfers to households may reach most but not all, as a number of commentators have pointed out.
    • Furthermore, the quantum of transfers seems inadequate to see a household over a month.
    • The state and Centre have to come together to figure out quickly some combination of public and private participation and DBTs that will allow needy households to see through the next few months.
    • We have already seen one consequence of not doing so – the movement of migrant labour. Another will be people defying the lockdown to get back to work if they cannot survive otherwise.

    Gearing up for fiscal shocks

    • Our limited fiscal resources are certainly a worry. However, spending on the needy at this time is a high priority use of resources, the right thing to do as a humane nation.
    • This does not mean that we can ignore our budgetary constraints, especially given that our revenues will also be severely affected this year.
    • Unlike the US or Europe, which can spend 10% more of GDP without fear of a ratings downgrade, we already entered this crisis with a huge fiscal deficit, and will have to spend yet more.
    • A ratings downgrade coupled with a loss of investor confidence could lead to a plummeting exchange rate and a dramatic increase in long term rates in this environment, and substantial losses for our financial institutions.

    Channelizing expenditures

    • So we have to prioritise, cutting back or delaying less important expenditures, while refocusing on immediate needs.
    • At the same time, to reassure investors, the government could express its commitment to return to fiscal rectitude.
    • The govt. must back up its intent by accepting the setting up of an independent fiscal council and setting a medium term debt target, as suggested by the NK Singh committee.

    Boosting up Industries

    1) MSMEs

    • Many MSMEs already weakened over the last few years, may not have the resources to survive.
    • We need to think of innovative ways in which bigger viable ones, especially those that have considerable human and physical capital embedded in them, can be helped.
    • SIDBI can make the terms of its credit guarantee of bank loans to SMEs even more favourable, but banks are unlikely to want to take on much more credit risk at this point.
    • The government could accept responsibility for the first loss in incremental bank loans made to an SME, up to the quantum of income taxes paid by the SME in the past year.

    2) Large industries

    • Large firms can also be a way to channel funds to their smaller suppliers. They usually can raise money in bond markets and pass it on.
    • Banks, insurance companies, and bond mutual funds should be encouraged to buy new investment-grade bond issuances, and their way eased by the RBI.
    • The government should also require each of its agencies and PSUs, including at the state level, to pay their bills immediately, so that private firms get valuable liquidity.

    Looping in everyone’s participation

    • The government should call on people with proven expertise and capabilities, of whom there are so many in India, to help it manage its response.
    • It may even want to reach across the political aisle to draw in members of the opposition who have had experience in previous times of great stress like the global financial crisis.
    • If, however, the government insists on driving everything from the PMO, with the same overworked people, it will do too little, too late.

    Conclusion

    • Globally, it is said that India reforms only in crisis.
    • Hopefully, this otherwise unmitigated tragedy will help us see how weakened we have become as a society, and will focus our politics on the critical economic and healthcare reforms we sorely need.