Turning The Crisis Into An Opportunity: Rajiv Kumar, Niti Aayog

Intensifying Covid-19 pandemic and a looming global recession are altering the every possible economic indicators into a downward spiral. Government of India’s principal think tank, NITI Aayog is deliberating the scale of the impact and the possibilities that wean India off the global recession and economic policies to mitigate and bring back the industries on its feet. BW Businessworld’ s Manish Kumar Jha speaks with Rajiv Kumar, Vice Chairman, NITI Aayog on such possibilities.

What is your outlook for the Indian economy now?

The Prime Minister’s timely, farsighted and courageous decisions have helped stem the spread of the Corona pandemic in India. Attention must inevitably now shift to striking the right balance between saving lives on the one hand and livelihoods on the other. Except that given our low per capita incomes and number of people below or just marginally above the poverty line, livelihoods and lives are closely intertwined. This will of course not be an easy and straightforward proposition given the complex ground realities in our country. These rule out any attempt to put in place a pan-India solution. We will have to allow maximum flexibility to our States to design their individual post-Covid-19 responses as suits their realities, constraints and aspirations. Nonetheless, we will all have to work together to engender a robust economic recovery and also attempt to convert this unprecedented crisis into an opportunity.

But first things first. It goes without saying that we have to prevent the cash crunch and temporary total revenue loss, being faced by a large number of both large and small companies, from getting converted into insolvency and bankruptcy. That outcome will cripple production capacities and not allow a robust supply response to emerge in the post Covid-19 period.

Private industry-especially MSMEs and SMEs will cite liquidity crunch amid crisis- and possible job losses en mass? What are the measures are you going to suggest for them?

Preventing liquidity crunch resulting in insolvency is relatively simple in advanced OECD economies, where firms operate in the organized sector and Governments have access to substantial financial resources. The Indian situation is vastly different. Nearly 90% of the workforce is employed in the informal sector which, according to the latest economic survey, has more than 60 million small, medium and micro enterprises. Delivering timely liquidity support to these entities, though evidently difficult, should be a priority. We will have to use the GST network (12.3 million companies in April 2020); the vendor network of large OEMs and FMCG companies (about 20 million entities across different sectors) as well as the data from States’ excise departments to be able identify these potential beneficiaries. We can, therefore, can devise modalities to prevent large scale bankruptcies, both within the large corporates (only 63,000 companies have paid up capital of more than Rs 10 crore) and even within the MSMEs if sufficient resources can be mobilized.

Going further we can convert that crisis into an opportunity by jettisoning all those policy features that currently incentivize firms in India to remain small and globally uncompetitive. As the latest Economic Survey has recommended, we could start by rendering policy support to ‘new companies’ rather than only to MSMEs as the practice has been so far. At the same time, labour market conditions can be further liberalized so that Indian companies, big and small, do not always have to treat wage costs as part of the company’s fixed costs. Wage cost flexibility that ensures greater employment, will surely not be opposed at this time when unemployment levels are at a record high.

MSMEs can also be significantly helped by the much wider use of ‘Fintech’. Digital tracking of income streams and of borrowers’ net worth looking for commercial credit can dispense with the need for high collateral guarantees that the MSMEs find impossible to produce. These two measures will significantly re-invigorate the MSME sector, which has been severely impacted by the Corona crisis.

How challenging will be the recovery for India? What are the sectors that need your attention to stay afloat?

It is widely believed that the pandemic could see the global economy slide in to a recession that is more severe than that which followed the financial crisis of 2008. Estimates of total loss in global economic activity range from between 6 to 10 trillion dollars. The WTO estimates that global trade could slump between 13% to 32% in 2020. These ominously point towards a global economy which is in real danger of spiraling downwards to a Great Depression like state as a result of the pandemic.

India is fortunate that its structural features and strengths will ensure that it is not entrapped into this downward vortex. Even the most pessimistic forecasts have the Indian economy registering a positive GDP growth rate in 2020-21. The near universal belief is that India and China, given their population size, resource availability, strength of domestic consumption demand and entrepreneurial talent, will register positive GDP growth even if the global economy experiences a severe economic downturn. Here too we can convert the crisis in to an opportunity. We must recognize that successful domestic investors, who have seen their businesses grow in India, are the most effective promoters of the India story. The crisis have brought the government and business together in successfully fighting the pandemic and in devising a coherent robust approach for post Covid-19 economic recovery. Therefore, it is now timely and imperative that these crisis are used to build the mutual trust between the government and private sector. This is the critical element in building investor confidence, which must be the bedrock of engendering a robust and sustained economic recovery.

The real victory over the Corona pandemic will be achieved when a true India Inc emerges out of the crisis with the firm resolve by all stakeholders to work together on the basis of mutual trust in order to put the Indian economy on a sustained, rapid and employment intensive growth trajectory.