Economist and former chief statistician Pronab Sen says intervention should first go to the labour-intensive wholesale markets. Else, the pandemic is likely to disrupt the nations’ supply chain of required goods. “It is no longer a demand problem and a general stimulus will not work well. Now you have to actively manage the supply side,” Sen says. He advocates taking care of workers and traders who run these markets across the country. Paying for the treatment of those who have Covid-19 will be a humongous exercise. But the government must make sure small traders do not become bankrupt.
Sen admits that there is no mechanism to easily push money to such unorganised sectors. But it is these people who are most dependent on cash during a crisis and they get easily affected if the money flow dries up. The government has to do whatever is required to ensure this section does not lack the staying power. “Let the RBI print money. If it causes inflation, we will deal with it after the crisis is over.”
The US is about to announce a $1 trillion stimulus package that aims to put cash in the hands of taxpayers, help small businesses and airlines. That makes sense as most people in the US, unlike in India, are part of the formal sector. Most stimulus packages announced in the past week by the governments in the US, Italy, France, Spain, the UK, Brazil and China are all combinations of tax cuts, subsidies on social security payments, loan restructuring support and employment protection schemes. In India, Prime Minister Narendra Modi announced an economic task force would be set up to work on the country’s response to the crisis. Unlike Sen, many others say the government should go for tax cuts as that would be easier to implement and it would help big businesses survive.
Industrialist Harsh Goenka, for one, wants the government to help businesses stay afloat in this crisis. “Weaker players will find the going tough. Worldwide, central banks are reducing costs of funds and we need to move fast in that direction.” Banks should be encouraged to lend and provisioning norms should be relaxed, he says.
Goenka also says businessmen should deploy CSR funds, with an experienced industrialist leading a cohort. Cyril Shroff, managing partner of Cyril Amarchand Mangaldas, says while transaction related legal work may go down, insolvency, pre-insolvency restructuring, corporate advisory work around employment, performance and contract will go up in the aftermath of the pandemic.
Founder of tax boutique Dhruva Advisors Dinesh Kanabar says much can be done to stop companies from going belly up if the government decides to relax the March deadlines on tax filing and advance tax. The government will not lose revenues by delaying deadlines. Ensuring smooth cash flow is the biggest issue and India needs to address that first, Kanabar adds. The country is going through a “shock” that the government needs to manage, says Dun & Bradstreet’s Chief Economist Arun Singh.
The travel and tourism industry alone is likely to lose $7 billion between March and May. “There was pent up demand, and if the government can manage the losses that this shock will create, things can become normal.” Given how the crisis has unfolded and how billions of dollars are being pushed out as stimulus across the globe, the Indian government has little choice but to increase its own spending.