Expert Speak India Matters
Published on Apr 19, 2020
While China may escape recession or experience it in a mild form — India is likely to experience it more harshly.
India needs to fight recession the way China is doing

Both the World Bank and International Monetary Fund (IMF) chiefs have said that the world will be in recession soon. Everyone is expecting that. More surprising is a recent study by the UN trade body, UNCTAD (United Nations Conference on Trade and Development), Geneva, which has forecasted that India and China will escape the recession. India has already gone into recession because the GDP in the first two quarters of the current financial year is showing a declining trend. According to former Finance Minister P. Chidambaram, in the third quarter, the GDP will be two percent lower.

The other signs of recession are apparent, including joblessness in all the sectors. Unemployment has risen to 23.4 percent. The informal sector, comprising thousands of micro-enterprises, is in distress, as a result of which thousands of migrant workers have had to return to their villages. If the various sectors that are under pressure today do not recover fast enough, these migrants may have no jobs to return to. Even if they return, there will be severe congestion, like in the slums of Dharavi, Mumbai, where 99 percent of the population use public toilets (some 80 to 90 persons share each toilet, making it easier for the pandemic to spread).

It would be great if the central government’s relief package of Rs 1.7 trillion could help migrants set up small retail business through loans. This might lead to a pile of NPAs, but nothing compared to the big loans that the mega business magnates took from public sector banks and defaulted.

It would be great if the central government’s relief package of Rs 1.7 trillion could help migrants set up small retail business through loans.

India must beware, however, of the widening fiscal deficit. If the fiscal deficit widens, the international rating agencies will downgrade India’s credit rating, and investments will dry up, and the rupee will fall. On the one hand, low rupee value will mean increase in debt servicing charges on foreign loans by the government and corporates. This is happening in the background of lower revenue collection and a huge increase in government expenditure. But the government has no choice but to take austerity measures. Yet cutting down on interest rates on small savings, which will affect the elderly mostly, has not been a welcome step.

China has been giving out a relief package ever since its economic slowdown began one year ago. Perhaps that is why the UNCTAD thinks that China will be able to avoid recession. China has begun many income generating programmes, and banks have been asked to extend loans and rollover debt without penalty or negative rating. Rents have been cut. China has also increased access to borrowing by MSMEs and it has led to unemployment falling. China has pumped in $14.3 billion into the financial sector.

India’s latest CMIE report states that rural unemployment is higher at 31 percent compared to 20 percent in urban areas. We have been caught unprepared in dealing with the recession so far. Other signs of recession are that there will be job losses in all the sectors like aviation, hospitality, manufacturing and automobile sectors. The farming sector is under great stress.

Farmers will be facing lower prices and reduced incomes. In such a situation, how can they support migrants from towns? They will have to be given massive support for their migrant relatives. Shelters and food kitchens ought to be started. Also, both farmers and migrants have to have money in their pockets in order to survive. At such a critical time, the government should try to go all out to help the poor in every way it can.

China has also increased access to borrowing by MSMEs and it has led to unemployment falling. China has pumped in $14.3 billion into the financial sector.

Micro-enterprises in villages should be given all support. For all micro-enterprises in the country, the Reserve Bank of India’s (RBI) slashing of repo rates was a good idea, but whether it will translate into lower commercial banks’ lending rate has to be watched carefully. If the MSMEs are activated, then the migrants would return. But, the best option would be to resettle them in the villages and towns. It will help in decongesting big cities and relieve pressure on their resources.

Any kind of village enterprise, even handicrafts, requires a continuous supply of power and water, and good living space for the workers. Hence refurbishing the village infrastructure should be the top priority for the government. Construction of roads will increase employment, for example, by making startups easier.

The workers should be given living wage, which covers their food and lodging, and not just minimum wage. A few years ago, this author visited Bishnupur, a village near Kolkata that is famous for its woven textiles and doll making. Business was slow, and expert weavers of famous Baluchari sarees made on complicated Jacquard Looms depicting stories from the Ramayana and Mahabharata, were abandoning their age-old trade and taking to potato selling because of the absence of a living wage. Some migrants also could take to vegetable selling if they had seed capital.

Women are adept at retail, and so it is good to hear that the money from the relief fund is reaching them. Thus, the prime goal of the Central and State governments is to reach out to the migrant workers who are in great distress right now. They are also afraid of catching COVID 19 in the congested slums they live in. Besides, unless jobs return, they will not return. The economy is not in the pink of health and job creation will be slow in the affected sectors, and will have to be revived. As for the hospitality and aviation sectors, much will depend on global revival.

While China may escape recession or experience it in a mild form, India is likely to experience it more harshly. According to the International Labour Organisation (ILO), India will add 400 million people to the number of poor.

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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