Context: India’s immediate economic recovery from pandemic induced crisis lies in the policy domain of the government and the Reserve Bank of India (RBI).
Key challenges to the Indian economy:
Recession: anticipating a contraction of 7.7% of the Gross Domestic Product (GDP).
Fiscal restraint: Compared to the Budget estimate of 3.5% for 2020-21, at mid-year, the fiscal deficit was running at 115% of the budgeted figure.
Risk of credit becoming costly: RBI is thinking of reining in the purse strings now that economic recovery seems on the way.
Declining state of the financial sector: Rising Non-Performing Assets (NPAs) in Public Sector Banks (PSBs) and debilitating state of Non-Banking Financial Companies (NBFCs).
Impact of the pandemic: has highlighted inadequacies in -
The Public Healthcare System
Education sector: due to closing down of schools, children being forced to adopt digital learning and disappearance of the mid-day meal programme during the pandemic.
Policy Measures For Sustained Economic Recovery:
Stimulate consumption at the bottom: This will revive Micro, Small and Medium sector and will restore jobs, reinforce consumer demand and in turn revive supply chain for the corporate sector.
Budget must ensure cash benefits for poor and working capital for cash-starved small units.
Changing the rules of the fiscal deficit: Stop looking at the safe level of fiscal deficit in terms of the Budget and start focusing on public debt as a percentage of GDP.
India is much better off at 62% compared to Japan (246%), US (106%) and Germany (89%), in terms of public debt as a percentage of GDP.
Strengthen the financial sector: Providing a lifeline to NBFCs and recapitalising the PSBs to ensure credit growth until they can be sold off.
Ensure continuous supply while moderating inflationary pressures: inflation picked up in the first place because the economic standstill severely affected supply.
Mitigate the impact of the pandemic on public healthcare and education system: state of publicly funded education and healthcare is no better amid pandemic.
Lancet has set up a citizens’ commission to chalk out a forward path for Indian healthcare in the next decade.