Yojana Summary:
Post Covid Economy

(November 2020)

                                                                                                          Important Facts from the Yojana

Pre COVID-19 Economic Situation of India
Last quarter of 2019-20 GDP growth rate	3.1%
First quarter of 2020-21 GDP growth rate	-23.9%
Fiscal deficit of 2019-20	3.8%
MSMEs in India
Contribution to India’s GDP	30 % of GDP
No of enterprises	63 million
Export contribution	48.1 %  of total export
Employment contribution	21 %
Employment and Human Resource in India
Workers in India	487 million
India’s rank in Human Capital Development Index	78 out of  122 countries
No of people in age group of 15-59 years	62%
No of DPIIT recognised start-ups	28,000
Formal sector payroll in India	91.9 million
Worldwide unemployment rate	5.5%
Percentage of skilled population	5% in India, 38% in Mexico, 52% in the USA
No of people NSDC trained over last 10 years	2.5 crore
Handloom Sector in India
People employed	4 million
Average monthly income of weaver	Rs 3400 per month
Transport Sector in India
Total road length in India	46.99  lakh kms
National Highways	2 % of the road length
Energy consumed by transport sector in India	17%  of TFC, 3rd largest in the World

 

 

Preparing Indian Economy for Post COVID Word

Syllabus: GS Paper – III (Economic Development) - Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

1. India’s Strategy during Covid-19 Pandemic

• The world economy experienced a major crisis in 2020 due to the Covid-19 pandemic. Indian policy-makers too faced a challenging period on both health and economic fronts.

• Given the wide range of expert opinion, different governments took different approaches to tackle Covid-19.
• Challenges before Indian policymakers:

• extreme uncertainty and paucity of information at the time when COVID 19 arrived in India.
• The World Health Organization, was far from clear in its recommendation and changed its stance repeatedly.
• Course correction for 1.3 billion people is difficult if strategy goes wrong.

The Barbell Strategy

• Central Government opted for what is known in financial markets as a “barbell” strategy – i.e. hedge first for the worst-possible outcome while progressing step-by-step with a Bayesian updating of information.
• Initial total lockdown, therefore, should be seen as a hedge against the worst possible outcomes.

• According to experts, a strong initial lockdown could stall the epidemic at an early stage.
• The lockdown also gave the space to arrange a large-scale medical response in terms of equipment, quarantine and testing capacity.

• As time has passed, the central government then unlocked the economy step-by-step as information as well as medical capacity both improved. Lockdowns and other responses were increasingly left to local governments.
• The same barbell strategy was used in the economic response. The Indian economic response during the lockdown phase was oriented more towards providing a cushion to the most vulnerable segments of society and of the business sector.

• This explains the emphasis on food availability, cash transfers to Jan Dhan accounts, government guarantees on loans to small enterprises, moratoria and postponement of financial deadlines.

• Unlike many other countries that front-loaded large stimulus packages, Indian government decided to wait as cycle of demand simply would not take-off in a lockdown. Instead, the time was used to put in place long-term structural reforms in anticipation of the post-Covid world.
• With the economy mostly unlocked by early October, there is now a case for an appropriate demand stimulus with infrastructure investment taking center-stage. An infrastructure pipeline is being ramped up.

Adapting to a Post-Covid World

• Post Covid world will have its own geo-politics, supply chains, technological innovations, institutional structures, consumer preferences and so on. It is very difficult to make grand predictions about how exactly the post-Covid world will function.
• In such an uncertain world it is better to invest in two things: flexibility and resilience. 
• Recently announced structural reforms show that they attempt to encourage flexibility and adaptation in India’s economy.
• The agriculture sector reforms free-up farmers to sell their produce as they wish while those involved in the supply chain can invest in storage without fear of being labelled “hoarders”.
• Similarly, dozens of central labour laws have been reduced to four internally consistent codes. On one hand they strengthen laws related to safety and working conditions, on the other hand they allow employers greater flexibility.

Aatmanirbhar Bharat Package The central government outlined Rs. 20 lakh crore stimulus package with accompanied large scale structural reforms as part of Aatmanirbhar Bharat Package.  The package talks of four Ls: land, labour, liquidity and laws, with more structural reforms in all these areas. Five pillars of this package are: Economy, Infrastructure, System, Vibrant Demography and Demand. The Aatmanirbhar Bharat Package includes wide-ranging interventions such as direct benefit transfer, food security, rural jobs under MGNREGS, Credit Guarantee schemes for MSMEs and Kisan Credit Card (KCC) scheme.

• The other ingredient of the longer term post Covid framework is the emphasis on resilience. This is the key to understand the Prime Minister’s vision of “Aatmanirbhar Bharat” or Self-reliant India.
• The vision is not about an inward - looking retreat into shell. The main idea of self-reliance is that India should become more resilient by leveraging its internal strengths. It should also be unapologetic about pursuing its national interests.
• Post-Covid world will require reforms in two further areas–administrative structure and the legal system.

•  In both cases, an archaic rigid system is unable to deal with the needs of the twenty-first century.
• Upgradation in legal process is necessary to reduce pending cases.
• legal process should be able to enforce routine contracts.

Q.1 India’s economic and health response to COVID-19 has been somewhat different than that of other countries. Discuss the India’s strategic response to the arrival of COVID-19. According to you, what measures shall be taken by India to adapt Post COVID world?

 

 

Syllabus: GS Paper – III (Economic Development) - Changes in Industrial Policy and their Effects on Industrial Growth.

2. Industrial Policy in the Post - Covid world for Self Reliance

• India’s Industrial Policy has evolved over the years, and changes have been introduced based on the exigencies of time.
• Overtime, the thinking that started dominating policy circles was that the government, instead of directly intervening in sectors, must play the role of a facilitator to ensure competition and efficiency.
• The thinking that the government must reduce its role in directing investments and facilitate market forces in different sectors requires a relook in the light of the Covid-19 pandemic.

Industrial Policy in the Post- Covid world

An Industrial Policy in the post-Covid world may have the following components:

• Making in India for the world, which requires focusing on a few sectors to build comparative advantage, so that in due course, India is a major player in the global market in these sectors.  This will enable us to reduce critical dependence on any  country and developing self reliance for items like bulk  drugs/APIs, power equipment,  consumer goods, and defence  related products.

• Also, employment generation must be a key aspect behind all sectoral initiatives undertaken by the government.

• Defining world-class quality standards is important. Quality of products and services is a key driver of competitiveness. Some measures that may be undertaken in this direction are:

• Industry should be encouraged to drive formulation and development of voluntary standards.
• Regular participation of identified experts in international standards setting bodies such as International Organization for Standardization (ISO), International Electro Technical Commission (IEC) and Codex.
• Enhancing testing, inspection and certification infrastructure domestically, with private-sector participation. 

• Improving infrastructure and reducing logistics costs, which will work from the supply side and help in reducing production costs, thus making Indian manufactured products more competitive globally. 
• Ease of doing business (EoDB) should be enhanced. 

• The real EoDB must lie within the operations of state governments and district authorities that lie closest to where business is done. State governments can be encouraged to rank districts on the lines of EoDB at the district-level.
• There should be an institutional mechanism for regulatory impact assessment, which will provide an objective evaluation of new regulations.  This exercise will reduce overall burden of regulatory compliances on industry.
• Stable and predictable policy regime is important for EOBD.

• Upgrade to advanced technologies and easy transfer of technology from global and Indian innovators to Indian industry. 

• Digitisation forms the basis for the next wave of disruptive technologies. Adoption of digitisation can be aided via measures like establishment of a National Digital Grid, robust data protection regime and facilitating market access for application of advanced technologies across sectors. 
•  While emphasis on innovation and indigenous development of technology is critical, there is economic sense in acquiring smart technologies developed elsewhere for catch up and for further development. A Technology Deployment Fund can be created with private sector participation to support acquisition of technology.

• Implementing measures that prepare businesses for the new post-Covid-19 economic conditions and realities.

• Firms can be incentivised to shift to alternate means of doing business, which include, improving web presence, advertising via social media, etc. 
• Business support organisations like chambers of commerce can bring firms together and match business opportunities, which in turn can reduce costs for both buyers/sellers and create economies of scale. 

Recent Measures Undertaken by the Government in this Direction

• Boosting Domestic Manufacturing 

• Make in India 2.0 is focussing on domestic manufacturing of 15 champion sectors like Textile and Apparels, Food Processing, Gems and Jewellery, Pharmaceuticals, etc., in consultation with line Ministries. 
• A number of production linked incentive (PLI) schemes in the manufacturing of mobiles and electronics, APIs and medical devices have been approved. 
• Phased Manufacturing Programme (PMP) is in operation for Cellular Mobile Handsets and e-vehicles. NITI Agog has identified LED Lights, Network Products, Medical Devices, Pharmaceutical Drugs, and Man-made fibre for implementation of PMP.
• Twenty sectors have been identified in consultation with industry, where attention would be given to make India self-reliant.
• To incentivise Make in India and domestic manufacturing, DPIIT has revised its Public Procurement (Preference to Make in India) Order with changes that will promote greater domestic value addition. 
• In order to address the  issue of import surge, cheap  imports, and to support domestic  manufacturing, the government  has effected various import  restrictions in recent months. 

• Encouraging Foreign Direct Investment (FDI) to Boost Domestic Manufacturing, Investment and Technology Enhancement

• The intent has been to make the FDI policy more investor friendly, aligning it with national interest.
• The government is working to develop strategies to attract FDI, particularly for foreign firms looking to diversify their manufacturing base, and to boost investment.
• The Government has  approved the creation of  an Empowered Group of  Secretaries (EGoS) and Project  Development Cells (PDCs)  in Ministries/Departments of  Government of India to facilitate  and streamline investments into  India.

 

• Infrastructure and Logistics 

• A National Infrastructure Pipeline (NIP) covering projects worth Rs. 111  lakh crore with about Rs.  44 lakh crore worth of projects under implementation. 
• The government is in the process of finalising a National Logistics Policy which aims to bring down logistics cost.

Q.1 The thinking that the government must reduce its role in directing investments and facilitate market forces in different sectors requires a relook in the light of the Covid-19 pandemic. Discuss the main components that a Post –COVID 19 Industrial Policy shall have to facilitate Self-Reliant India Movement.

Syllabus: GS Paper – III (Economic Development) - Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

3. COVID-19 Pandemic and Changing Business Landscape

COVID-19 pandemic may change the way businesses are done in the future. It requires to facing some challenges and making changes in business landscape.

Possible Changes in Business Landscape

• The major change in the landscape of Indian business will be the irrelevance or gradual diminution in the importance of several service industries on account of the pandemic-induced lockdown which has changed the way in which businesses function.
• The future of commercial real estate has been questioned as companies have found that work-from-home (WFH) has been a convenient way of getting work done and there are savings to be made in terms of lease rentals and rent.

• The common workspace concept which had a boom in the last few years will have to go in for some reinvention. 

• The hospitality business would have to reconsider options. With several companies now learning to conduct meetings over the Internet, the necessity to travel and stay in hotels would get diminished. Clearly, hotels will have to work out a strategy to focus more on tourists which would mean aligning their services and costs to a different set of people.
• Conference business have to go in for reinvention. hold seminars and attract an audience, the mode of conduct of events will change. The same has held for entertainment too where there has been a lot of flexibility shown in hosting concerts and other shows.
•  The airlines business will have to rework its model considering that travel will not be the same for some time. As corporate India has been under pressure on the revenue side, so they will try to cut cost which in turn will affect the airlines business even more.
• Malls will be affected. The Covid-19 impact will question the future of this business as with the e-commerce boom, the mall became relatively less attractive for visitors These malls have been major sources of employment especially at the basic graduate or school level class and a slowdown here would have implications on the creation of jobs. 
• The tourism industry would also have to be prepared for a major shift. The global tourists as well as domestic tourists would always be wary of travel at least for a year post the end of the pandemic.
• In Education sector, the online route will catch on. While, this will expand the scope for a new mode of imparting education, the traditional way of teaching through the brick and mortar structures would become less important. This will impact not just the ability of schools to charge fees but also the support systems such as internal facilities as well as schoolbooks, school buses, etc.
• Entertainment has already caught on through the non-theatre experience and the industry must be prepared for the same. Entertainment halls would find it hard to survive with the consumer tastes changing.

Industries that will be Benefitted 

• Telecom services - the consumption of data will tend to increase as more people work from home and less in offices
• e-commerce - Households are realising the convenience of such shopping. The visits to the local store have come down and the principle of social distancing will also lower the footfalls in supermarket stores.

Way Forward

• With several services becoming less important over time, the future of growth for India will now be more towards manufacturing and less on services. Vocational skills need to be given a big push at the ground level so that there is alignment between demand and supply for skills.
• Another challenge for the government would be to deal with labour as the shutdown had made several industries look to leveraging technology more, which means less labour. There is more focu s on AI and less on labour.

• This creates a problem for the government as investors are already crying hoarse for more flexible labour laws which becomes a political and social issue.

Q.1 The major change in the landscape of Indian business due COVID-19 pandemic will be the irrelevance or gradual diminution in the importance of several service industries on account of the pandemic-induced lockdown. Discuss.

 

Syllabus: GS Paper – III (Economic Development) - Changes in Industrial Policy and their Effects on Industrial Growth.

4. Revitalising MSMEs

Adding to the existing set of obstacles is the onset of the Covid-19 pandemic, which has not only crippled the world economy but now poses a significant challenge to the survival of MSMEs.

Obstacles during Pandemic

• The MSME sector is characterised by the smaller scale of operations involving a high level of personal interaction and facing enormous liquidity and credit constraints. With lockdown, such interactions have come to a standstill rendering small units obsolete. 
• There is widespread prevalence of the micro-enterprises (constitute 95 percent of the sector).  These enterprises, mostly located in the informal economy, are likely to be the worst hit by the pandemic.

• Most of these units depend upon agents for collection of revenue.
• These firms lack access to formal finance. They do not have the adequate information technology setup to foster the possibility of work from home.

Major Bottlenecks faced by MSMEs

• According to UK Sinha Committee report, access to finance is the foremost constraint hindering the MSME growth. The Economic Survey 2017 points out that the MSME sector received just 17 percent of the total loan outstanding. The World Bank Enterprise Survey highlights that 65 percent of MSMEs surveyed report financial constraints as one of the significant obstacles faced by them.

• As of February 2020, the growth in credit to MSMEs stood at 2.6 percent well below the recommended target (Task Force on MSMEs) of 20 %.

• Two principal channels of operations that restrict the flow of formal finance to MSMEs. First, the lack of established credit history and second, sufficient collateral results in MSMEs’ inability to pay, which makes lending to them risky.
• Besides, the rise in non-performing assets (NPA) is restricting banks from extending credit
• According to World Bank Enterprise Survey (WBES) data, 30 percent of the MSMEs facing financial constraints cite unfavourable interest rates, high collateral requirement, and insufficient size of loan and maturity period as the impeding factors.

• There is perennial problem of delayed payments. According to the UK Sinha Committee report, delayed payments explain 41 percent of all distressed loans in the MSME sector.
• Further, the present credit mismatch for the MSME sector is estimated to be around $20-25 trillion. This, in turn, would drive them towards informal sources of finance to bridge the cash gaps.
• Substantial share of enterprises is in the informal sector. The relief measures like tax reliefs may not have much influence on these enterprises since they rarely fall under the tax net.

Government Measures

• Deferring of GST payments till June 2020. RBI has allowed deferment on interest payments on working capital loans for the next three months.
• RBI has also introduced Long-Term Repo Operations worth Rs. 100,000 crores, enabling banks to lend at cheaper rate, likely to benefit the MSME sector.
• The public sector banks have set up Covid-19 Emergency Credit Line to ease the liquidity crunch faced by MSMEs.
• SIDBI announced a concessional interest rate loan targeted for MSMEs engaged in manufacturing goods or services related to Covid-19.
• The government is in the process of delivering a $1 trillion MSME relief package.

Way Forward

• While designing the package for the MSME sector, policymakers will have to ensure that funds flows to the regions and industries that require it most.
• Policymakers need to address the issue of delayed payments.

Some mechanisms for timely payments to MSMEs already exist.

• The RBI introduced the Trade Receivables Discounting System (TReDS) for MSMEs in March 2014. However, the lengthy process and the burden of the discounting fee and other financial charges drove MSMEs towards informal sources of finance.
• MSME ministry launched the Delayed Payment Monitoring Portal -MSME Samadhaan in 2017. In many instances, despite the Micro and Small Enterprise Facilitation Council (MSEFC) issuing an order for payment of dues, buyers still delay payments.
• The overlapping nature of these initiatives not only creates administrative difficulties and an increase in costs of such operations but also creates confusion among the beneficiaries

• In this regard, the government should introduce web and an app-based platform. This would enable the spread of timely and vital information with greater ease.
• Mandating the use of payments via UPI (unified payment interface) would reduce payment delays due to paperwork or other disruptions such as the one created by Covid-19.
• FinTech services can help MSMEs. These services evaluate the repayment capacity and default risk of a unit through technology that provides a precise understanding of the time needed by MSMEs to convert investments into cash through sales of goods and services.

E.g. Capital Float, an NBFC, assesses the risk profile of the business in real-time by evaluating MSMEs cash flow and, upon meeting its criteria, provides loans to these businesses on the same day with zero paperwork.

Q.1 A perpetual problem that MSMEs face is the lack of finance. Discuss the financial constraint faced by MSMEs in India. Also, suggest some solution to the financial woes of MSMEs.

Syllabus: GS Paper – I (Society) - Urbanization, their problems and their remedies.

5. Migrant Issue

• It is estimated that during lockdown around 3 crore (Tumbe, 2020) /8 crore (estimates based on demand for schemes) migrant workers returned home. Now many of them are returning to cities.
• Addressing the needs of particular migrant streams through coordinated state actions is the need of the hour.

Learnings from the pre Pandemic Approach

• The pre-pandemic approach has been to view places through a binary of urban and rural with the assumption that people belong to one or the other and rarely circulate between them.
• This has resulted in a non-acknowledgement of the scale of migration in data and translated into most domains of urban policy (housing, social security etc.) having no space to benefit migrants.
• The Inter-State Labour Act has a history of weak implementation. Similarly, Construction Workers Act and Domestic Workers Act is not implemented properly.

• The Kerala Migrant welfare scheme - it is estimated that while there are over 25,00,000 migrant workers in Kerala, but only 500 of them have become eligible for benefits of the scheme.

• A bulk of the migration in urbanising India is not powered by skills and not accompanied by a universality or portability of entitlements.

• Generic policy for migrants may not work; what is required is adoption of generic principles to develop specific responses for particular migrant streams.
• There is need to produce coordinated response across state geographies while most government policies were state government-led.
• The portability of entitlements such as Public Distribution System (PDS), the delinking of services from land tenures and a strict regulation of hazardous occupations emerge as key aspects of advocacy.

Systemic Issues

• There is no platform for a short-range and long-range thinking about the issues of migration.
• There is no systematic effort to collect data on various migration streams and to understand vulnerabilities and policy demands of specific migrant streams.
• There is very little thinking about what kind of institutional mechanisms are necessary to reach out effectively to migrant workers. Such inadequacies may result in ineffective translation of the steps undertaken.

Way Forward

• There is need to develop a multi-dimensional and multi-scalar response that acknowledges the contribution of migrants in the economy of cities.
• Responses that offer social protection, decent living and working conditions can enhance productivity of migrants.

Q.1 Addressing the problems of internal migrants in India requires solutions to systemic some systemic issues. Discuss.

Syllabus: GS Paper – III (Economic Development) - Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

6. SANKALP for Employment

• The migration of workers during the Covid-19 lockdown, presents an unprecedented challenge for many states.

• In the wake of this challenge, the governments of many of these states have announced many initiatives. E.g. Registering the returnees and their skill levels and collating job opportunities in projects funded by the central or state governments.

• Building adequate capacities at the grassroots levels for identifying employment opportunities early and anticipating skill requirements at the level of districts is critical for an outcome focused skills training system.

SANKALP (Skill Acquisition and Knowledge Awareness for Livelihood Promotion)

• The World Bank supported programme of Ministry of Skill Development & Entrepreneurship; SANKALP (Skill Acquisition and Knowledge Awareness for Livelihood Promotion) has been rolled out to promote decentralisation of skill planning and implementation.
• At present, the Ministry of Skill Development and Entrepreneursh