Economy
: The Way
Back
On 25th
March, when FM Smt Nirmala Sitharaman announced a Relief Package of Rs
1.7 lakh crore ( approx. $ 22 billion ), she may not have reckoned with the
possibility of the lockdown getting extended beyond 14th April
Hence , that package was more like a BAND-AID on a
body-scratch
But now with a consensus emerging about extending the
lockdown ( although, in a phased manner ), quite possibly we are facing a DEEP
WOUND !
And obviously , that $ 22 billion package just won’t
suffice, for an economy where ( according to a recent news ), our daily GDP is approx.
$ 8 billion ! – a package worth 3 days of
GDP !
There are two sides to any economy :
The Demand side and the Supply side
For the fabric of economy, these are like WARP and the WEFT of
threads .
If one of these threads gets damaged, the entire fabric
starts unraveling !
In the Relief Package, there was very little for the factories / workshops , which produce the GOODS (
the SUPPLY side ) . Following are the main
features of that package :
Ø About 800 million
people will get free cereals and cooking gas
Ø Cash through direct
transfers for three months.
Ø Rs 1,000 ex-gratia payment to nearly 30
million poor senior citizens, widows and disabled
Ø Insurance coverage of
as much as Rs 50 lakh each for about 2 million healthcare workers battling the
disease.
Ø Relief to construction
workers
Ø First installment of Rs 2,000 under the Pradhan
Mantri Kisan Yojana will be frontloaded to reach 87 million farmers in April.
Ø Increase
in MANREGA wages from Rs 182 to Rs 202 per day
Ø Rs 500 / month to 200 million women Jan Dhan account
holders for 3 months
Ø Rs
20 lakh collateral-free loan to women SHG ( Self Help Groups )
FOR ORGANIZED SECTOR :
Ø Govt
to contribute EPF to companies with less than 100 workers
Ø Contribution
for both employer and employee
Ø Non-refundable
advance of 75 % or 3 months’ wages, from PF account
There was no way , such a pittance could help generate “
DEMAND “
In the meantime, with factories closed , SUPPLY has
just stopped ! Inflation has started !
To balance both , we need :
Ø Workers
to return to factories and re-start the machines – SUPPLY
side
Ø People
to start working / earning wages / start
buying things – DEMAND side
In short, moving from a STANDSTILL economy to a
SWINGING economy
But , with a GRADUAL lifting of lockdown, such a move
will also need to be GRADUAL as follows:
Ø “ Few
Machines Working “ to “ Some Machines Working “ to “ All Machines Working “
Ø “
No Supply “ to “ Some Supplies “ to “ Full Supplies “
Ø “
No Purchasing Power “ to “ Some Purchasing Power “ to “ Consumer Disposable Surplus “
Ø “
No Buying “ to “ Some Buying “ to “ Buy All You Need “
While such a GRADUAL SHIFT takes place over a period of
next 12 weeks , here is what Government should do to make this SLOW TRANSITION,
as painless as possible :
Ø For
2020 – 21 , only 50 % of the Personal Income to be taxed for individual tax
payers
{ Revenue loss = Rs 3 lakh*Crore }
Ø For
Corporate, 25 % of salaries/wages paid during July –
Aug – Sept , to be borne by Govt
- Only to those Corporate , which implement by
end-May , Mobile based Attendance System as described at :
From BAD
to MAD [ 01 June 2016 ]
MAD goes
to Mandi [ 02 Jan 2020 ]
Ø Amounts
of donations made to PM-CARES fund to be treated towards CSR obligations with
provision for carry forward any excess amount
Ø No GST for goods sold during July – Aug – Sept ( assuming production will reach
normal level by June end )
{
Revenue loss = Rs 3 lakh*Crore }
Ø Since
above-mentioned benefits will drain the government exchequer, leaving very
little funds for planned Infrastructure, I strongly urge the Government to issue
ELEPHANT BONDS , with modifications as described
at :
Congratulations,
Shri Surjit Bhallaji, [ 31 Oct 2019 ]
Only
yesterday, EU countries have started debating issue of CORONA BONDS to help out the countries worst affected by this
crisis ( viz: Italy – Spain – UK – France )
QUESTION :
As far as India is concerned, the Government is faced with
a “ Trade-Off “ between :
Ø
Saving lives through a gradual / phased out lifting of lockdown,
Saving lives through a gradual / phased out lifting of lockdown,
AND
Ø
Getting back to NORMAL economic activities ,
as fast as possible , with minimum hardship
to citizen
QUO VADIS
? Which way
should we take ?
I hope , following diagram will help our Policy Makers
to quantify the PROS and CONS of each of their alternatives
With regards
Hemen Parekh
09 April 2020
=========================================================
Superb simply Superb... I really hope Government takes this as the model to manage COVID 19.
ReplyDeleteSuperb sir
ReplyDelete