Budgeting for COVID-19: State and Centre should together make India business-ready

Published: April 24, 2020 3:10 AM

Given the efforts and the resources required to fight the pandemic, it would be helpful if the Centre as well as the state governments re-work their respective Budgets for FY21.

There have been two lockdowns, but the possibility of another extension cannot be completely ruled out, especially in the worst-affected areas.

By Rahul Renavikar

We all have a fear of the unknown, what one does with that fear will make all the difference in the world” So said Lillian Russel. The past month has been a test of grit and determination for the entire country. The top-most priority of the government is to stop the pandemic and save as many lives as possible. It is about time that quick and hard steps are taken to bring the economy back on track. A slew of measures like interest rate reduction, loan repayment moratorium, etc, have already been announced.

There have been two lockdowns, but the possibility of another extension cannot be completely ruled out, especially in the worst-affected areas. The learning and the experiences from both, the developed and the developing nations, have been a mixed bag, and India, given its uniqueness, has to have a different approach to tackle the looming economic crisis. Most economists have already downgraded India’s GDP outlook for FY21. The full picture will only emerge when normalcy is restored.

The timing of the pandemic is unfortunate.Economic activity was already slowing and many efforts such as a reduction in corporate tax rates in September 2019, an introduction of optional lower personal income tax scheme in the Budget 2020, etc, had been taken to give a fillip to the economy. It will be a herculean task to restore growth. The economy seems to be under a severe recession threat; the labour situation is grim; credit lines have dried up; the unemployment rate is at an all-time high, and businesses are staring at huge losses.

The situation is alarming. The Indian growth story has been largely dependent on domestic consumption, supported by exports. Crude is trading at historic lows, and the commodity markets are also witnessing the pressure. The drastic reduction in crude oil prices is not helping the Indian consumer as there is zero or very less consumption. There are also reports in some parts of the media that many companies want to move their manufacturing operations out of the worst affected areas immediately and scout for new countries to set up the manufacturing facility. India needs to respond to this opportunity.

First, and foremost, is making available land and other infrastructure to shift manufacturing. Many state governments have earmarked large parcels of land for industrial development. These can be immediately made available for businesses willing to shift the manufacturing base to India. A strong collaborative approach between the Centre, state and local authorities needs to be adopted to cater to their requirements. The next step could be relaxing the norms for import of second-hand machinery.

It is nearly impossible for the manufacturers to order fresh, new machinery to start the manufacturing process, that too when the machinery in the manufacturing plant in the Covid-19 affected areas is rendered redundant. Relaxations could be provided in select sectors, and then gradually expanded. These may be granted for a limited period, say, a couple of months.

Given the efforts and the resources required to fight the pandemic, it would be helpful if the Centre as well as the state governments re-work their respective Budgets for FY21. Tax revenues, which were already under stress, and allocation of expenses, need a re-look. Mobilising additional resources would be a big challenge as there is very little room for raising tax rates.

Spending priorities have changed drastically since the outbreak, and the government needs to provide for expenses to cater to the relief mechanism. One of the options is to re-allocate funds. The private sector would continue to play its role in supporting the government’s efforts, and it must be ensured that there is enough and more budgetary support for undertaking mass relief programmes. International financial institutions such as the IMF, ADB have also announced aid. Swift action is needed to contain the spread.

The author is MD of Acuris Advisors Pvt Ltd. Views are personal

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