Perilous 2020, potential 2021
This is the right to time to sift our responses to the pandemic and use the experience to move ahead
The coronavirus caused unprecedented devastation across the globe in 2020. The loss of precious lives of over a million and sickness of several millions despite the advancement in healthcare and technology explain the depth of the damage caused by the pandemic. In sync with the rest of the world, India too is fighting the war to flatten the virus curve. It has fast come to terms with the ravaged civic life and well balanced its priorities to overcome the crisis. The collaborative efforts of the States and handiwork of all the stakeholders are repairing the damage.
The gruesome Covid-19 and its collateral impact on the economy will remain as an indelible scar as the notorious 2020 recedes into history. The opening up of the economy, the possible rollout of vaccine and early signs of revival are set to bring hope and optimism in 2021. This is the right to time to sift our responses to the pandemic and use the experience to take ahead some of the learning.
Domestic Economy
Many informal sector employees lost their jobs. Migrant labourers marched miles to reach home and are yet to reconnect fully with industry. Such massive economic slump led to a deeper recession with the GDP contracting 23.9% in Q1 and 7.5% in Q2 of FY21.
It was the fifth and worst recession since independence. The earlier spells of recessions witnessed a fall in GDP marginally: -1.2% in FY58, -3.66% in FY66, -0.32% in FY73 and -5.2% in FY80. Poor monsoon, balance of payment crisis, collateral impact of war, energy crisis and oil shocks arising from Iran-Iraq war were some of the reasons for the negative growth. But the current spate of recession is unique caused due to the lockdown and ceased economic activity to prevent the spread of the virus.
Going by the resilience of the economy, the Reserve Bank of India expects the current fiscal FY21 to end at -7.5% of the GDP. The GDP is expected to enter the positive trajectory beginning in Q3 to build upon the growth tempo. Most global think tanks have improved economic outlook for India during FY21: World Bank – 9.6%, IMF – 8.8%, ADB
– 9%, S&P – 9% and ICRA at -7.8%.
Among the granular performance indicators, manufacturing surprisingly entered the positive zone at 0.6% in Q2 overcoming deep contraction of 39.3% recorded in Q1. Agriculture stayed steady at 3.4% in Q1 and Q2 while the services sector narrowed its negative growth from -20.1% to -10.8% during the period showing the propensity of the uptick.
The RBI’s move to grant a moratorium on loan repayments for first six months followed by opening up restructuring options to standard borrowers and the historic decision to refund compound interest amount to all borrowers for loans up to Rs 2 crore has been a confidence booster for entrepreneurs.
Accelerated Relief Measures
Strengthening the collaborative support measures and adding to the past stimulus packages, the Atmanirbhar 3.0 (Rs 2.65 lakh crore) has raised the total relief to Rs 29.87 lakh crore working out to 15% of the GDP. In creating buoyancy, passing on the stimulus relief and delivering ease of doing business built-in policy reforms will be a long-run process. What becomes more significant in the near term is the role of banks in dispensing quick loans, restructuring eligible loans to provide more time to borrowers and creating latitude to the entrepreneur to focus on restarting units will continue to be at the centre stage for economic revival.
Intervening further in time, the government expanded the Emergency Credit Line Guarantee Scheme (ECLGS) 2.0 to provide government-guaranteed collateral-free credit support for 26 stressed sectors identified by the Kamath Committee. Now, borrowers having existing outstanding loans of Rs 50-500 crore can also get additional loans up to 20% of outstanding standard loans as on February 29, 2020, provided overdue, if any, does not exceed 30 days. The annual turnover limit of the unit of Rs 250 crore is also lifted. The tenor of this additional credit will be five years, including the one-year moratorium.
Guaranteed by National Credit Guarantee Trustee Company Limited (NCGTC), ECLGS loans will carry concessional interest rates not exceeding 9.25% so that these units can start activities with fresh fund flows. The scheme will be open till March 31, 2021, or until Rs 3 lakh crore of limit is fully used up. As on November 12, banks and financial institutions sanctioned Rs 2.05 lakh crore to 61 lakh MSMEs. However, disbursements stood at Rs 1.52 lakh crore. This liberal version of the scheme can go a long way in helping the units revive.
Digital Transformation
Among the opportunities, the digital thrust needs to be taken forward. Contactless and currency-less services assuming more significance to tackle the virus menace, financial intermediaries have increasingly learnt to adopt digital mode to reach out to customers. Many activities have moved online. Some banks have activated Chatbots for customer resolutions. Work from home (WFH), staggered attendance, rotations of assignments, meetings through videos and webinars have become a way of life across the industry. Many banks have found WFH as a way to reduce costs.
Digital inclusion efforts of banks, struggling to pick up pace during pre-Covid times, have now suddenly found increased adoption by stakeholders on their own benefitting the banks. The RBI added another step by making RTGS available round the clock. The limit of relaxation of additional factor of authentication has been raised from Rs 2,000 to Rs 5,000 effective January 1, 2021.
Every adversity needs to be converted into an opportunity. In fighting the pandemic, some of the key learnings were greater collaboration, sensitivity towards health, immunity and hygiene, digital acceleration, remote working, imbibing technology-aided workflows and processes. In addition, the industrial policy reforms during the period should be combined with other learnings to unleash the potentiality of the economy in 2021 and beyond to fast erase the adversities of 2020.
(The author is Adjunct Professor, Institute of Insurance and Risk Management [IIRM]. Views are his own)
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