Coronavirus – Economic Issues

Re-imagining and reinventing the Indian economy


From UPSC perspective, the following things are important :

Prelims level : Atmanirbhar Bharat Abhiyan

Mains level : Economic recovery amid coronavirus pandemic

The COVID-19 pandemic has disrupted the global economy and India is no different.  Besides the stimulus package totalling ₹20 lakh crore, a lot more needs to be done, however, to resuscitate the country’s growth engine.

Try this question:

Q.Economic reconstruction needs a multi-pronged strategy apart from economic stimulus. Discuss.

Need for a two-pronged strategy

  • At this critical juncture, India needs a two-pronged strategy to successfully navigate the current crisis and recover strongly thereafter.
  • First, minimise the damage caused by the COVID and clear a path to recovery and second, rebooting and re-imaging India by promptly exploiting new opportunities unleashed by evolving business scenarios.

Identifying the four major economic drivers:

  1. Big Business Houses which are a major contributor to GDP and large employment generators
  2. MSMEs which are the lifeline of the country, generating wealth for the middle class
  3. Startups which bring innovation and transformation to our country’s economy
  4. Approaching Indian Diasporas for driving foreign investments

Following suggestions by the author gives a way forward strategy to recover the economy:

  1. Tax incentivization

  • Big business houses should be supported by the government to reopen their operations by way of tax incentives or ease of procurement of raw materials or other goods and services on credit.
  • This will energize consumer demand and boost the functioning of the vendor or ancillary industry in the MSME sector (which has huge potential for job creation).
  1. Ensuring seamless credit flows considering NPAs

  • The RBI should consider Single One Time Window for restructuring business loans, as required, by all banks.
  • There is a high probability that non-performing assets are likely to rise once the prevailing moratorium is lifted by RBI.
  • The government and RBI also urgently need to assure banks, that their business decisions will not be questioned, to encourage credit flows.
  1. Calibrating Make in India

  • The ongoing distrust on Chinese manufacturing amid US-China spat can be very well garnered by India.
  • Making India a global trading hub – devise an incentive regime for companies setting up global trading operations from India.
  • The govt. should think of establishing self-contained “industrial cities” that earmark space for manufacturing, commercial, educational, residential and social infrastructure.
  • The Centre can prepare a five-year plan on getting at least 60 per cent of those companies, desiring to move manufacturing out of China to India.
  1. Encouraging sunrise sectors

  • It should also encourage sunrise sectors as part of re-imagining Indian economy such as battery manufacturing (storage systems)/ solar panel manufacturing.
  • The government can also consider giving impetus to “Deep Tech”-leveraged businesses — blockchain, robotics, AI, machine learning, augmented reality, big data analytics, cybersecurity, etc.
  1. Creating an ecosystem to boost startups

  • India is amongst the top start-up ecosystems globally. Several of them are in pre-Angel or Angel-Funding stages and are under significant pressure to stay afloat in view of a lack of adequate liquidity.
  • Start-ups not only help drive innovation but also create jobs, which will be very important going forward.
  • The government needs to provide significant support to the start-up ecosystem.
  1. Auto-sector reforms

  • The auto industry which contributes significantly to GDP (nearly 9%) deserves special treatment.
  • In addition to reducing GST rate, old vehicle scrap policy with tax incentives for creating a demand for new vehicles may be formulated.
  • There is a need to recognise the Auto Sales Industry channel partners as MSMEs.
  1. Plug-and-Play model for foreign investment

  • Maharashtra has created a turnkey ‘plug-and-play’ model for foreign investors.
  • Similarly, other States must get their act together, be it on land acquisition, labour laws and providing a social, environment and other infrastructure.
  • Land should be made available for projects with all necessary pre-clearances — at Centre’s level (including Environmental), State’s and Municipal dispensations.
  1. Labour law reforms

  • Reforms in labour laws do not only mean permission to hire and fire.
  • Leeway should be given to strictly enforce discipline within the factory premises and demand higher productivity.
  • The moves by U.P., M.P. and Gujarat are welcome signals.
  • The government should provide health insurance for migrant labourers as experimented by certain States.
  1. Encouraging Diaspora

  • Investments of NRIs and OCIs in India should be treated on par with those of Resident Indians as regards interest and dividend repatriation and management control of Indian companies.
  • It may be mentioned that the Chinese government had called on rich overseas Chinese to invest in China with minimum government control, and massive investments followed.
  • This has contributed to China’s prosperity and economic rise.
  • A similar investment boom can take place in India through NRIs and OCIs who have the resources and expertise in manufacturing and technology.
  1. Creating off-Shore investment centres

  • Off-Shore investment centres like Singapore can be opened in Mumbai where Indian domestic laws and taxation will not be applicable.
  • MNCs may route their investments into India through the Off-Shore Centre in Mumbai.
  • Foreign legal firms and banks along with domestic institutions can be invited to have a presence in the Off-Shore Centre.
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