India’s Response to COVID19: Economic Responses
The shutdown caused a large amount of job loss, pushing unemployment further up, which was already high before the pandemic. The economic slowdown necessitated fiscal expansion by the government to put the economy back on track.
An immediate relief measure was announced on March 24, 2020, by the Finance minister Nirmala Sitharaman. The amount of relief spending was of around INR 1.7 Trillion (~$22 Billion). The package included:
- Direct and Indirect tax-related measures: President signed on Taxation and Other Laws ( Relaxation of Certain Provisions) Ordinance 2020 on March 31 2020. These included the relaxation of various direct and indirect taxes.
- Public Distribution System measures: People covered under Pradhan Mantri Garib Kalyan Yojana were given 5 kg of extra rice and wheat and 1 kg of preferred pulses for free over their allowance for March, April and May.
- Direct Benefit Transfer measures: Farmers receive help through PM-KISAN scheme of INR 6000 every year in three equal installments, Government gave the first installment upfront for the year 2020 in April. This measure was included as a measure of COVID relief package. MGNREGA workers wages were increased from INR 182 daily to INR 202, benefiting 50 million families.
- Health Care related: Finance minister announced medical insurance of INR 5 million per health care worker, covering almost 2 million health care and ancillary workers.
- Organised sector related: The Employees Provident Fund Organization (EPFO) has announced — employees who contribute to EPF can withdraw up to 75 per cent of the account balance or three months’ basic salary and dearness allowance, whichever is lower.
- Foreign nationals: Foreign nationals stuck in India were given an automatic increase in VISA till May 31 without overstay penalty.
Economic stimulus measures
Relief measures announced by Reserve Bank of India :
- Reduction of repo rates by 75 basis points.
- Reduction of CRR requirement by 100 basis points releasing INR 137000 crore across the banking sector.
- Liquidity coverage ratio reduced from 100% to 80% to release liquidity.
Relief measures for MSMEs
- INR 3 Lakh crore collateral free loan with 100% credit guarantee.
- INR 50 Thousand crore equity infusion for MSME with growth potential and viability through Fund of Funds. ( Name given to collection of funds by different states for start-ups )
- Threshold for default under section 4 of IBC has been increased from INR 100000 to INR 10 million to prevent triggering of insolvency code on MSMEs.
Other relief measures were for NBFC and Power utilities, which included liquidity infusion of around INR 120 thousand crore. Lending institutions were given permission to provide moratorium of three months on instalment payment outstanding on 1 March 2020.
On 15th May 2020, reform in Essential Commodities Act was announced. Essential commodities act is a six-decade old act that provides power to government to control prices by controlling supply chain of commodities. Because of this regulation farmers have not been able to get better prices for their produce since free market price was not available for produce. Further, even though farm output of India grew at a tremendous rate, due to price control, there had been meager investment in cold storage facility warehouses, processing, and exports as no one wanted to invest in a fixed price market. Cereals, pulses, oil seeds, edible oil, onions, potatoes were removed from the list of essential commodities allowing free market pricing for these commodities. Essential commodities list could be changed in case of a severe crisis. For example, Masks and PPE kits were added as essential commodities to protect price rise as a response to corona virus in march 2020.
Further reform measures in various sectors in Indian economy were announced on 16th May under Prime Minister Atmanirbhar Bharat Scheme. These measures were specifically possible in India because of space available to reform and deregulate various sectors which western economies had already reformed.
The sectors and corresponding reforms included:
Commercial Coal Mining
50 coal blocks were offered for commercial mining on a revenue sharing basis instead of fixed rupee/tonne basis.
Minerals
A composite exploration-mining-production regime was introduced, and 500 mining blocks were offered through an open and transparent process under new rules.
Defense Production
Foreign direct investment in defense manufacturing was raised from 49 percent to 74 percent. Ordnance Factory Boards would be incorporated and listed on exchanges.
Civil Aviation
Airspace would be opened since only 60 percent was freely available till now. Six more airports would be privatized.
Power Distribution companies
Power distribution companies (DISCOMS) would be privatized in union territories.
Space
Privatization in space sector by providing access to ISRO facilities to private sector and equal participation in satellite, launches and space-based services.
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