Policy Level Impetus Post-Covid: Relief, Recovery & Reforms

“The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger- but recognize the opportunity.” - John F. Kennedy

May be John Kennedy had a foresight that next big crisis would origin from China hence gave its reference in context of crisis! As we know the Novel Coronavirus pandemic is a spectre hanging on the future of all world economies, including India.

The disease has so far impacted millions of people from across the world specially developed world but slowly spreading into emerging and frontier economies. In India, COVID-19 cases have seen a sharp spike over the past few weeks, forcing the Government to first announce a 21-day complete lockdown followed by another 19 days lockdown as we call it lockdown 2.0, albeit with some relief!

Through its effective and timely actions on arresting the spread of corona virus and not yet letting it get to community transmission stage ( Stage 3 ), Government of India has not only ensured humanity takes precedence over anything else but also has provided inspiration and leadership to the rest of the world including countries like USA, Europe and Japan. who have heaped praise on Indian Government and its leadership for taking a lead in mitigating one of the biggest threat that humanity had most probably ever experienced, saving millions of lives.

Lockdown has led to massive disruptions in businesses and financial activities, leaving deep repercussions on the economy’s health. Thousands of daily-wage workers have lost their livelihood, small and medium enterprises (SMEs) have been ravaged and business cycles have been completely thrown off track. Financial markets have also taken a huge hit alongside business sectors.

With the crisis worsening with each passing day, there are widespread hopes of strong policy support by the Government and RBI in the form of fiscal and monetary policy.

According to me, the approach that’s required to be taken now to get our economy back on track is very similar to the one taken by Franklin D Roosevelt, the 32nd US president, post world war II. It included Relief, Recovery and Reforms!

Honourable Finance Minister on March 26 announced a stimulus package valued at approximately one per cent of GDP. Among several measures announced included an economic package of Rs 1.7 trillion for the poorest of poor and a Rs 50 lakh per person insurance cover for medical personnel at the frontline. In addition to that Reserve Bank of India (RBI) also announced fiscal measures such as repo rate cut of 75 basis points and a three-month moratorium on term loans.

The relief measures announced so far, though welcome steps do not commensurate with the extent of the long-term impact the pandemic will have on lives, livelihoods and critical productive capacity of people and businesses.

Immediate relief is a need of an hour through larger fiscal and policy stimulus along with direct financial lifelines to households and businesses in equal measures. This to be followed by focus and targeted measures at sector level to ensure the economy’s recovery doesn’t get pushed back to many-many years.

Relief measures could be given through Stimulus, Subventions and Moratoriums:

Stimulus
Countries ravaged by COVID-19 are announcing massive economic packages to support their people and businesses. The US is considering direct payments of $1,000 per adult and $500 per child to Americans. The UK announced a massive rescue package of $424 billion. Canada has announced tax and spending measures amounting to 8.4 percent of GDP. Brazil and China both have provided economic packages a couple of times higher than India’s.

In India, financial stimulus and fiscal action amounting to at least 3 - 5% of the GDP will be needed along with measures to protect jobs, small businesses, and support to employers and businesses.

Subventions
The key elements of the package announced by the Government earlier included providing free food and cooking gas and cash transfers to lower-income households; insurance coverage for workers in the healthcare sector; and wage support to low-wage workers.

The cash transfers to lower-income households and the insurance coverage need to be extended to other people from informal sectors, small businesses and cottage industries with heavy job losses. Financial support and government subventions should be extended to the sectors most affected by the Covid-19 such as tourism, aviation and financial services.

Extension Of Moratorium And Other Relief Steps

A welcome relief was provided by the RBI to Banking industry through several relaxations, extensions, liquidity enhancing measures and various lending and investments initiatives. With size, scale and contribution of non-banks such as NBFCs, HFCs, MFs and Insurance, it would be prudent to extend the relief measures to all financial services players otherwise purpose of providing relief may not be accomplished.

Recovering Economy By Creating Jobs And Helping Businesses Grow

Adequacy of relief measures would determine the effectiveness of any subsequent steps taken to recover an economy. Recovery steps would have to be taken across sectors specially ones that are must to create jobs and consumer demand such as auto and telecom.

Part of recovery is to revitalise the financial markets that plays a pivotal role in providing the much-needed growth capital for the industry. This role will assume much more significance once the COVID-19 crisis ebbs away.

Critical policy support is the urgent need of the hour to regain the confidence of both foreign and domestic investors in the markets, especially equities which have been severely ravaged by the crisis. Further, besides initiating measures to stabilise and revitalise markets, policies should also focus on making them even more robust and resilient to any future threats or crises like the current Corona pandemic.

To get the economy propel and ensure enough liquidity is available for capital seeker, current tax structure on capital markets transactions to be streamlined. Also, liquidity availability for credit through banks, NBFCs would be required to channelize the same to corporates and Individuals for demand stimulation.

To rationalise the margin structure for cash markets and derivates by aligning the same to global markets and hence increasing depth and breadth. A study conducted by consultancy firm EY and submitted to SEBI highlighted the fact that trading in derivatives in India costs much more when compared with most of the other leading markets due to a variety of margins that are imposed on the traders.

Incentives to small and retail investors, especially for the first-time investors, will be crucial to support the divestment plan of the Government in the coming year. Incentives by way of tax sops, discounted pricing slabs and rationalising paperwork for new account opening needs to be done in consultation with the industry.

Reforming the financial system to ease economic crisis

Due to fiscal constraints and to help revive ‘animal sprits’ in private sector and to collectively take this battle against COVID-19 forward major reforms would be needed to address all past issues and promote the public-private partnership for investments across sectors. This along with much needed labour and land reforms would go long way in boosting public and private investments and provide necessary propeller to our economy and jobs.

We need to provide policy impetus across capital markets that would ensure Ease of customer onboarding, building investors trust and providing equitable investment opportunities which would help develop market players and grow financialization of overall savings.

The author is the Executive Director and CEO, Reliance Securities