Revitalizing Indian Economy Post -Covid Era | UPSC

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IASbhai Daily Editorial Hunt | 6th Nov 2020

“Challenges are what make life interesting and overcoming them is what makes life meaningful.” – Joshua J. Marine

Dear Aspirants
IASbhai Editorial Hunt is an initiative to dilute major Editorials of leading Newspapers in India which are most relevant to UPSC preparation –‘THE HINDU, LIVEMINT , INDIAN EXPRESS’ and help millions of readers who find difficulty in answer writing and making notes everyday. Here we choose two editorials on daily basis and analyse them with respect to UPSC MAINS 2020-21.

EDITORIAL HUNT #228 :“Revitalizing Indian Economy Post -Covid Era | UPSC

Revitalizing Indian Economy Post -Covid Era | UPSC Revitalizing Indian Economy Post -Covid Era | UPSC

GOVINDA | NAUSHAD
Revitalizing Indian Economy Post -Covid Era | UPSC

      HEADLINES:

Do recent indicators hint at a real economic revival?

      CENTRAL THEME:

The government must come up with an effective fiscal package to help stressed sectors

SYLLABUS COVERED: GS 3 : Economy

      MAINS QUESTION:

How has the ground situation changed for industry since March when the lockdown was imposed? Manufacturing sector have made it to the doldrums of passing festive season.  Examine the scope of positive demand-supply chain post Covid-19 ?  -(GS 3)

      LEARNING: 

  • Lockdown and Indicators
  • Stepping into new normals
  • Adjusting the slabs
  • Structural Reforms

      INTRODUCTION: 

LOCKDOWN AND INDICATORS

  • LOCKDOWN IMPACT : After India’s economy collapsed in the first quarter of 2020-21 following the nationwide lockdown imposed to curb the COVID-19 pandemic.

Some economic indicators from September and October, from power consumption to GST collections, suggest that things are improving.

  • STRINGENT LOCKDOWNS : Our lockdowns were amongst the most stringent in the world, as we not only stopped most movement of people, but also of all logistics.

      BODY: 

STEPPING INTO NEW NORMALS

  • STANDSTILL ECONOMY : Things have improved greatly. Since manufacturing came to a halt , with the exception of essential supplies.
  • DEGREE OF SMOOTHNESS : The way in which we had done the lockdowns… it took a while to get things back to a relative degree of smoothness.
  • THE NEW NORMALS : It was only in the middle and end of June that companies really started getting back to some degree of normalcy.

That is the reason for the first quarter numbers of -24% in the GDP.

  • THE REVIVAL : Pharmaceuticals and chemicals, food and beverages, tractors, two-wheelers, consumer durables are all reporting good performance, with many firms reporting growth on last year’s average numbers.

SECTORIAL ASSESSMENT

  • STRUGGLING SECTORS : At the other end we have sectors like travel and tourism, which are still struggling, with capacity utilisation numbers between 10% and 30%.
  • MILD RECOVERY : They are a very long way from recovery. Construction and real estate are also struggling, as is retail.
  • RETAIL ASSESSMENT : Retail has seen some improvement.

 Still,  that is concentrated in high-street stores, not shopping malls, as people are still afraid to go to shopping malls and wander around. 

  • A MUST NEEDED PUSH : Three very employment-intensive sectors travel and tourism, construction and real estate, and retail — really struggling, probably at levels under half of last year on an average.
  • TRANSPARENCY AND CLARITY : We still do not have a complete control on the virus, and until we do, we cannot look at the future with certainty or complete confidence.
  • FOREIGN INVESTMENT : The economy had already been slowing down when the lockdown was announced, and investments had been coming down .
  • MONEY MARKET : Banks are not willing to lend as the banking crisis has not been addressed in any satisfactory manner, and, on top of it, we had a lockdown.

ADJUSTING THE SLABS

  • GROUND REALITY : The lockdown is not completely gone as we have the entire hospitality industry out; travel and tourism is not taking place and labourers are not available for construction.
  • LUCRATIVE FISCAL PACKAGE : In this situation, it was hoped that the state should come up with a good fiscal package. The Atma Nirbhar package only provided liquidity to the economy.
  • IMPACT OF LOW INVESTMENT : So, investment continues to be slow, which has long-term implications, and we do have a problem of fiscal space.
  • PREVIOUS BAIL OUTS : The entire additional spending, so far, was just about 1.5% of the GDP.

The second stimulus package basically provided white-collar workers, who were already spending, more benefits linked to their Leave Travel Concession.

  • FESTIVE COLLECTIONS : The GST numbers are showing a rise, not because of the economic revival, or the festival demand, or anything of the sort.
  • REDUCTION IN GST : Most of the construction material — whether it is cement or steel or paint — are all subject to 28% GST, but they are not sin goods.
  • ADJUSTING THE GST SLABS : The 28% GST-plus-cess is  levied on vehicles. Reducing the tax rate can increase demand, and this is also the time we take a look at the GST rates.
  • TAX REFORMS : The structural issues need to be addressed quickly.We may have better GST collections, but that actually should open up the opportunity to reform the tax.

CMIE data suggests that the unemployment rate rose again in October, while MGNREGA claims also rose in rural India

  • FORMAL SECTOR EMPLOYMENT : Formal sector is reasonably stable.

There is greater stress, as per CMIE, in the very substantial unemployment rate for salaried employees.

  • RESTRUCTURING ASSETS : The only thing that we have seen is a programme through the RBI for one-time restructuring for stressed firms;Focussed on current level of companies operations.

      IASbhai Windup: 

STRUCTURAL REFORMS

  • PENDING BILLS : The state should pay its bills — there are large outstanding dues to small and large companies, including from public sector companies and State governments.

This includes disputed amounts where awards have been made, and tax refunds.
 

  • INVESTMENT IN INFRASTRUCTURE : Such investment will not show up in immediate activity on the ground, but is the most productive thing that we can do to trigger long-term growth.
  • UPGRADING HEALTH SYSTEMS :  Investment in public health systems, which would require working very closely with the States.

At the end , How to spend ? : It should be ; Generating demand through cash transfers, expedite disinvestment, and push infrastructure projects.But without the fear of credit rating agencies.

       SOURCES:   THE HINDU EDITORIAL HUNT | Revitalizing Indian Economy Post-Covid Era | UPSC

 

 

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