Teji Mandi: Why is it important to restart the economy amid COVID-19 fight?

Teji Mandi: Why is it important to restart the economy amid COVID-19 fight?

Teji MandiUpdated: Wednesday, August 26, 2020, 02:35 PM IST
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Indian economy is poised for contraction in FY21 for the first time since 1979-80. If various international agencies are to be believed, the range of contraction could be anything between 3-5%. World Bank projected India’s economy to shrink by 3.2% in the current fiscal while the IMF's estimate pegs contraction around 4.5% for the same period.

The challenge is unique in a way that during the current crisis, all the past villains have taken a back seat. They were in fact in favor of the economy. Agriculture for example is in prime health with record Rabi sawing during the season while oil prices tanked to record lows post unprecedented dent in global demand.

Digital boost: Into the fast lane

The pandemic posted an entirely new challenge that followed no set template from the past. As it threatens to retweak many business models, digital has emerged as a central piece of strategy in a post-Covid-19 world. Business models are being re-arranged around that.

Last 4-5 months of the pandemic have pushed the entire digital drive in a fast lane. The large base of smartphone users and cheapest data tariffs has created a long-lasting impact on work culture, transfer of payments, consumption and direct benefit transfer of the government schemes.

The pandemic has been particularly severe on leveraged businesses. The financial constraint could likely hamper their ability to scale up and may force them to make way for new leaders, laced with low cost, and higly efficient digital infrastructure.

Implementation of 5G and roll-out of optical fiber network will be the major task for the government to strengthen the digital ecosystem in the country. The Prime Minister also emphasized the importance of it in his independence day speech where he laid out an ambitious target of connecting 6 lakh villages with optical fiber network in 1,000 days.

Consolidation and privatization: Next big theme in the making

As businesses with scale and financial ability being in a dominant position, consolidation is a big theme that is largely expected to be played out in the future. Sectors like real estate, telecom and PSU Banking are already seeing larger players gaining upper hands over the weaker ones.

Significant developments are taking place in the area of privatization as well. The Centre has recently proposed a new policy to have not more than four public sector undertakings (PSUs) in each strategic sector. The government has already merged Oriental Bank of Commerce and the United Bank with Punjab National Bank. Similarly, plans are drawn for Syndicate Bank's merger with Canara Bank and Andhara Bank and Corporation Bank with Union Bank.

Similarly, privatization of airports has also peaked pace with Airport Authority of India (AAI) awarding 3 airports, namely Ahmedabad Mangalore and Lucknow to Adani group. AAI is further looking to lease out additional six brownfield airports of Amritsar, Indore, Ranchi, Trichy, Bhubaneswar and Raipur.

Make in India: Gets bigger and better

As world economies turn protectionists in the post-pandemic world, the government has set a new target of taking the share of manufacturing to 25% of GDP by 2025.

Make in India is an ideal platform to achieve that. With changing situations, the government has also changed its approach which is far more nuanced, compared to its broad-based approach, adopted earlier.

In a more sector-specific approach, the government, special focus has been levied upon products that can be easily manufactured in India. The initial focus has been on defense, telecom, and electronic equipment and API manufacturing.

Key takeaways:

The pandemic certainly produced challenging times but every adversity throws enough new opportunities for the world to look forward to. The current situation is not an exception.

The initial government policies and steps taken are in the right direction and in sync with the global environment. However, its execution remains the key to restart India. The government must utilize this opportunity to initiate key reforms and continue to remove barriers in terms of ease of doing business.

Going by the magnanimity of the task, its difficult to predict a quick recovery. Business sentiments would improve only slowly and gradually and policy actions will take time to reflect their impacts. Hence, we remain cautiously optimistic and maintain #Teji outlook on recovery in the Indian economy.

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